Just recently, I was referred a client that needed to do some pretty extensive debt consolidation. Usually, I shy away from these refinances, mostly because I do not like seeing people suck all the equity from their house, only to rack up the credit card debt again.
This person was a slightly different situation. He has a HUGE equity position in his house, and high interest rates on the existing loan and another small mortgage loan on an investment property. He also wanted to pay off $20k+ in credit card debt. Rolling all this together, I could feel good about this.
But his FICO score was 672. If only he had a 680......See, cash-out refinances are very sensitive to credit score. The lower the score, the bigger the interest rate increase. Couple that a cash-out refinance's sensitivity to high loan/value, a Borrower can experience an almost exponential increase in interest rate.
So, here's what I did, and it's NOT brain surgery. The credit reporting company I use, Kroll, has this fantastic little calculator called CreditXpert. It can run all sorts of scenarios. The scenario I wanted to run was just this: "How can I get a FICO score just +8 points higher?". The CreditXpert system makes these predictions by drawing upon the untold thousands of reports it has on file to reverse-engineer and predict what the FICO score will do with small changes by the borrower.
In just moments, I had my answer. It was as simple as paying $510 to one single credit card, and he'd receive a +17 increase in his FICO score. (This occurs because paying down the balance to less than 30% of the limit dramatically improves the FICO scoring of that one credit card.)
Luckily, this person does have the cash-flow to send the $510 off to the credit card. Because it will be saving him (hold onto your hat) $115 per month.
I can hear the naysayers now "Eh, that's only $115 per month. I saved $250 per month last time I refinanced." Well, just remember that $115 was on top of the $320 I was already saving him. And I could have simply just completed the refinance and moved on, at the score he had. Why not do this for the client??
(Of course, this also works with Purchase deals)
Realtors - Ask your Mortgage Broker if he/she has these tools and knows how to use them. Like I said, it's not brain surgery, and it really can make or break or IMPROVE a deal.
Comments (1)Subscribe to CommentsComment