Author Topic: Just out of college, inherited a house + mortgage, advice?  (Read 9039 times)

clarkai

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So, we're married, he's in college, I just found a stable, non-soul crushing job, and we inherited a 30 year old mobile home when his mom died. I have no experience or knowledge of dealing with large sums of money, mortgages, investments and such (neither does he) so I'm coming here for guidance and to learn.

The house is on a 30 yr mortgage, 7% interest, and $600 monthly payments and currently has $65k left to pay. We've been putting in $1000/month, taken from an inheritance. It's at a 7% interest rate because the mortgage is held by the former owner instead of a bank, and she refuses to negotiate, refinance, lower the interest rate, etc (kind of obvious, really, as she is benefiting hugely from the high interest rate). To make it not a huge disaster, I've rented out 3 of the 4 bedrooms in this house to reliable people, and thus get $1300 in rent each month, which is enough to cover the mortgage and some of the utilities (but not really maintenance).

So here is our money situation:

Inheritance:
$42k-ish sitting in American Funds, gaining interest and not getting touched.
$29k in the credit union, that we draw on to pay the mortgage and tuition.

Income:
$1,300/month rental income
$1000/month ish from job that I just started.

Debts:
Mortgage: previously mentioned $65k at 7%
We have one credit card that gives 1% back that we use for bills and other essentials that we pay off completely every month.

The two biggest problems I see are the mortgage, and the $29k just sitting in the bank.

Is it possible to go to a bank and take out a mortgage at a presumably lower interest rate and use that to pay off the first mortgage?

As for the pile of money sitting in the bank, I hate it sitting there and not getting any interest, but at the same time, I'd like it available to make mortgage and tuition payments.

What I'm thinking of doing is transferring the mortgage to our credit union, if possible, and then making a huge payment of what ever $29k - 2 year's worth of education costs to the mortgage. 

So, oh greatly experienced and wise ones, does that sound like a good idea, or a bad one?

smedleyb

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #1 on: May 02, 2012, 01:37:05 PM »
Some questions:

1) What is the mobile home worth vs. what you paid/owe on the balance of the mortgage?

2) Do you own the land underneath/is it appreciating?

3) 30 years is old for a MH.  What condition is it in?

4) Are you allowed to refinance the mortgage?  Does your current mortgage owner have some special provision which prohibits you from refinancing/paying off early?

5) Do you live in the MH with the 3 roomates?  How big is that place?  Bathrooms?

6) Do you think this MH inheritance is a blessing or a burden?

Sorry to get specific, but I find your situation quite fascinating.  Renting the place and making $600-700 a month (if you make just the minimum mortgage payment) is an awesome method to find cash flow during an academic stint. 



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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #2 on: May 02, 2012, 02:40:36 PM »
Wait... you have a 30 year mortgage on a 30-year-old Mobile home, and the payments are $600? Or is there another house? If you owe 65k on a Mobile Home, you're getting ripped off unless it's on a really nice piece of real estate. A brand new 4 BR double wide runs somewhere in the 50-60k range, and Mobile Homes are generally a depreciating asset. Skimming through craigslist, I'm seeing doublewides from 1982 going for less than $10k in almost every region of the country. I really, really hope you're not almost 55k under water on a 30-year-old Mobile Home. Especially since it will make refinancing almost impossible. Hopefully, this post is either about 2 houses, or the land the house sits on is incredibly valuable.

Anyway... You should absolutely refinance if your credit is good. have 29K in the bank, and if you have a good credit score, you should be able to drop your mortgage payment down to less than $300 (Pay off 29k as a down payment, 36k mortgage @ 4.5% for 15 years= 275.40/month). Keep making the 1,000 payment every month, and you own it free and clear in 4 years. Even if you just refinanced the 65k at 4.5% (or less) for 30 years, you'd be knocking your payment down from 600 to 330, and could have it paid off in 75 months if you keep dropping $1,000 on it monthly (40 months, if you also pay down the extra 29k). Free and clear in 4 years instead of 20 is always a nice place to be.

gooki

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #3 on: May 02, 2012, 03:07:50 PM »
My 2 Cents.

Keep it simple. Pay off the 7% mortgage with the inherited American Funds, and credit union balance.

You're not going to get a better than 7% guaranteed return on any investment.

Then start squireling away the rental income into various savings/investments.

James

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #4 on: May 02, 2012, 04:13:51 PM »
Could be be talking about a pre-fab?  When you talk about renting out 3 of 4 bedrooms I guess I assume this isn't your normal mobile home in a mobile home park.


Like everyone is saying the current mortgage needs to be figured out.  If you can't refinance I assume you could at least pay it down as much as possible to lower the principle so more of your payment is going to principle each month?


Whether you want to be landlords is something to figure out for your own tastes.  It's more than just a financial decision, though whether it is worth it is certainly part financial.

arebelspy

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #5 on: May 02, 2012, 04:47:55 PM »
Keep it simple. Pay off the 7% mortgage with the inherited American Funds, and credit union balance.

You're not going to get a better than 7% guaranteed return on any investment.


Or pay off the WHOLE thing by refinancing to 4% or less.  The current owner may not want to herself, but if there isn't any prepayment penalties you may qualify with a traditional lender and they'll just pay off the current owner.
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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #6 on: May 02, 2012, 05:19:35 PM »
Wait... you have a 30 year mortgage on a 30-year-old Mobile home, and the payments are $600? Or is there another house? If you owe 65k on a Mobile Home, you're getting ripped off unless it's on a really nice piece of real estate. A brand new 4 BR double wide runs somewhere in the 50-60k range, and Mobile Homes are generally a depreciating asset. Skimming through craigslist, I'm seeing doublewides from 1982 going for less than $10k in almost every region of the country. I really, really hope you're not almost 55k under water on a 30-year-old Mobile Home. Especially since it will make refinancing almost impossible. Hopefully, this post is either about 2 houses, or the land the house sits on is incredibly valuable.

The land doesn't have to be "incredibly valuable" for these to be very reasonable numbers. The $10k mobiles you see on CL are almost certainly on rented land. I live in a pretty average COL area, and most unimproved lots cost more than $65k, a "really nice" lot would be somewhere north of $150k. It will obviously depend on her area, but I don't see anything worrisome about a 4 bedroom 1982 mobile with a $65k mortgage.

clarkai

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #7 on: May 02, 2012, 05:28:33 PM »
Whooo lots of questions, so I'm going to take these one at a time.


Some questions:

1) What is the mobile home worth vs. what you paid/owe on the balance of the mortgage?

2) Do you own the land underneath/is it appreciating?

3) 30 years is old for a MH.  What condition is it in?

4) Are you allowed to refinance the mortgage?  Does your current mortgage owner have some special provision which prohibits you from refinancing/paying off early?

5) Do you live in the MH with the 3 roomates?  How big is that place?  Bathrooms?

6) Do you think this MH inheritance is a blessing or a burden?

Sorry to get specific, but I find your situation quite fascinating.  Renting the place and making $600-700 a month (if you make just the minimum mortgage payment) is an awesome method to find cash flow during an academic stint.

1.) The mobile home and land together are valued at $138k by the county assessors office. We owe $65 on the mortgage which is for both the land and home.

2.) Yes, we owe the land. It was appreciating until 2009, and since then it's been going down. Probably because we haven't been mowing the front as we're both really allergic to grass.

3.) It's actually in pretty decent condition (although we have done some work). Right now on my list of things to fix is the thermostat (battery exploded and the acid eroded the terminal), one fuse to an exterior outlet that I don't use, a weak spot in the floor, and I also need to re-shingle the roof. Aside from that, it's fine.

4.) What I've been told is that they tried to refinance in the past, but the lady who holds the mortgage refused.

5) Yes. There are two normal bedrooms, the master bedroom, and then a really big room which basically amounts to a studio-bedroom that has it's own entrance. There are two bathrooms, and we have the master bedroom, so the three renters have to share the main bath. Of course, the renter's consist of a couple and their friend, so it's not that awful.

6) Definitely mixed. Neither of us like living here, him because it's his dead mom's house, me because I grew up in mobile homes and said I'd never live in one and also because I'm a gardener and this place isn't as big as I'd like. However, we do get to live basically rent free, from one perspective, and it is right next to the bike trail. Right now my husband rides 12 miles each way to school.

Don't worry, I don't mind answering questions.

clarkai

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #8 on: May 02, 2012, 05:32:24 PM »
Wait... you have a 30 year mortgage on a 30-year-old Mobile home, and the payments are $600? Or is there another house? If you owe 65k on a Mobile Home, you're getting ripped off unless it's on a really nice piece of real estate. A brand new 4 BR double wide runs somewhere in the 50-60k range, and Mobile Homes are generally a depreciating asset. Skimming through craigslist, I'm seeing doublewides from 1982 going for less than $10k in almost every region of the country. I really, really hope you're not almost 55k under water on a 30-year-old Mobile Home. Especially since it will make refinancing almost impossible. Hopefully, this post is either about 2 houses, or the land the house sits on is incredibly valuable.

Anyway... You should absolutely refinance if your credit is good. have 29K in the bank, and if you have a good credit score, you should be able to drop your mortgage payment down to less than $300 (Pay off 29k as a down payment, 36k mortgage @ 4.5% for 15 years= 275.40/month). Keep making the 1,000 payment every month, and you own it free and clear in 4 years. Even if you just refinanced the 65k at 4.5% (or less) for 30 years, you'd be knocking your payment down from 600 to 330, and could have it paid off in 75 months if you keep dropping $1,000 on it monthly (40 months, if you also pay down the extra 29k). Free and clear in 4 years instead of 20 is always a nice place to be.

Yes, the mortgage is $65k, but the land itself is valued at 60K by the county assessor... We're in a suburb that's pretty nicely located, and all the lots are about a third of an acre.

Refinancing is definitely on our minds, we just weren't sure if it was a bad idea to drop that 29k into the mortgage when we'd really like to be out of here in 3 years, and giving up the liquidity. 

clarkai

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #9 on: May 02, 2012, 05:34:47 PM »
Could be be talking about a pre-fab?  When you talk about renting out 3 of 4 bedrooms I guess I assume this isn't your normal mobile home in a mobile home park.


Like everyone is saying the current mortgage needs to be figured out.  If you can't refinance I assume you could at least pay it down as much as possible to lower the principle so more of your payment is going to principle each month?


Whether you want to be landlords is something to figure out for your own tastes.  It's more than just a financial decision, though whether it is worth it is certainly part financial.

It's definitely a mobile home, but it's not in your typical mobile home park. We're in a subdivision, and each lot is about 1/3 of an acre and everybody owns their own land. The house it self is a double wide that had a single wide addition added onto it in 1993 or so.

So far I really like being a landlord- except when we had the one trustfund kid who couldn't remember to pay rent on time.

clarkai

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #10 on: May 02, 2012, 05:35:24 PM »
Keep it simple. Pay off the 7% mortgage with the inherited American Funds, and credit union balance.

You're not going to get a better than 7% guaranteed return on any investment.


Or pay off the WHOLE thing by refinancing to 4% or less.  The current owner may not want to herself, but if there isn't any prepayment penalties you may qualify with a traditional lender and they'll just pay off the current owner.

I'm definitely going to look in to that, thanks.

clarkai

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #11 on: May 02, 2012, 05:37:06 PM »
Wait... you have a 30 year mortgage on a 30-year-old Mobile home, and the payments are $600? Or is there another house? If you owe 65k on a Mobile Home, you're getting ripped off unless it's on a really nice piece of real estate. A brand new 4 BR double wide runs somewhere in the 50-60k range, and Mobile Homes are generally a depreciating asset. Skimming through craigslist, I'm seeing doublewides from 1982 going for less than $10k in almost every region of the country. I really, really hope you're not almost 55k under water on a 30-year-old Mobile Home. Especially since it will make refinancing almost impossible. Hopefully, this post is either about 2 houses, or the land the house sits on is incredibly valuable.

The land doesn't have to be "incredibly valuable" for these to be very reasonable numbers. The $10k mobiles you see on CL are almost certainly on rented land. I live in a pretty average COL area, and most unimproved lots cost more than $65k, a "really nice" lot would be somewhere north of $150k. It will obviously depend on her area, but I don't see anything worrisome about a 4 bedroom 1982 mobile with a $65k mortgage.

Yah, exactly. The county says it's assessed at 60K, but they tend to price things 20k less than the market.

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #12 on: May 02, 2012, 06:23:07 PM »
Re: the original vendor not wanting to refinance or get paid out early - it doesn't matter what she wants - get hold of the original agreement and understand what terms are.  If you aren't confident figuring out what your rights and obligations are yourself a half decent lawyer will be able to tell you in 15 mins for not a lot of money, or if you don't want to spend that I'm sure you can find a financially literate or business savvy friend who can help you decipher the legalese.  You just need to understand whether you can pay her out or not.  If you can, you can then decide whether to pay cash or borrow from a bank.  As a minimum your position will be improved by around $2K per year (Refinancing to 4% from 7% on $65K = 3% on $65K = $1950).  Sounds like a reasonable deal for even a couple of hours of lawyer time.

I don't know if you have equivalent things in the US, but one way to maintain liquidity while slashing your mortgage payments in Australia is to maintain an "offset account" against your loan.  Basically the cash balance in the offset account reduces the principal in the loan for the purpose of calculating interest payments.  So if you have a $200K loan and $50K cash in an offset account you only pay interest on $150K.  This allows you to extract cash when you need it without selling or refinancing but reduces your interest payments in the meantime.

Good luck and good on you for asking for help!

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #13 on: May 02, 2012, 07:53:33 PM »

If you have access to the money in American Funds without penalty, I suggest simply paying off the loan in full.  Once you have gone through that paperwork and have a free title, I would find someplace that will provide a LOC locked in at a nice rate so you can pull out money in the future at a decent rate and without a lot of hassle.  I'd suggest funding a maxed out Roth each year with the money you are gaining by renting out the rooms, and investing the rest as you see fit.  It's important that the rent money doesn't just get dropped into your normal spending now that it isn't going to pay a mortgage, if that is a risk then might as well leave it at American Funds.


So you would have liquidity without cost via the LOC, and a nice stream of money flowing into savings via the rent payments.

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #14 on: May 02, 2012, 09:12:08 PM »
Re: the original vendor not wanting to refinance or get paid out early - it doesn't matter what she wants - get hold of the original agreement and understand what terms are.  If you aren't confident figuring out what your rights and obligations are yourself a half decent lawyer will be able to tell you in 15 mins for not a lot of money, or if you don't want to spend that I'm sure you can find a financially literate or business savvy friend who can help you decipher the legalese.  You just need to understand whether you can pay her out or not.  If you can, you can then decide whether to pay cash or borrow from a bank.  As a minimum your position will be improved by around $2K per year (Refinancing to 4% from 7% on $65K = 3% on $65K = $1950).  Sounds like a reasonable deal for even a couple of hours of lawyer time.

I don't know if you have equivalent things in the US, but one way to maintain liquidity while slashing your mortgage payments in Australia is to maintain an "offset account" against your loan.  Basically the cash balance in the offset account reduces the principal in the loan for the purpose of calculating interest payments.  So if you have a $200K loan and $50K cash in an offset account you only pay interest on $150K.  This allows you to extract cash when you need it without selling or refinancing but reduces your interest payments in the meantime.

Good luck and good on you for asking for help!

+2 on figuring out the agreement terms and talking to a lawyer. Sounds like that lady is being a huge btch about it. I say stick it to her.

Alternatively, just pay off the stupid loan if you can and move on your way. Liquidity is nice, but you'll build savings back up pretty fast with the rent you're pulling in. That'll give you some flexibility down the road since you won't have a payment.

smedleyb

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #15 on: May 04, 2012, 05:36:19 PM »
Whooo lots of questions, so I'm going to take these one at a time.


Some questions:

1) What is the mobile home worth vs. what you paid/owe on the balance of the mortgage?

2) Do you own the land underneath/is it appreciating?

3) 30 years is old for a MH.  What condition is it in?

4) Are you allowed to refinance the mortgage?  Does your current mortgage owner have some special provision which prohibits you from refinancing/paying off early?

5) Do you live in the MH with the 3 roomates?  How big is that place?  Bathrooms?

6) Do you think this MH inheritance is a blessing or a burden?

Sorry to get specific, but I find your situation quite fascinating.  Renting the place and making $600-700 a month (if you make just the minimum mortgage payment) is an awesome method to find cash flow during an academic stint.

1.) The mobile home and land together are valued at $138k by the county assessors office. We owe $65 on the mortgage which is for both the land and home.

2.) Yes, we owe the land. It was appreciating until 2009, and since then it's been going down. Probably because we haven't been mowing the front as we're both really allergic to grass.

3.) It's actually in pretty decent condition (although we have done some work). Right now on my list of things to fix is the thermostat (battery exploded and the acid eroded the terminal), one fuse to an exterior outlet that I don't use, a weak spot in the floor, and I also need to re-shingle the roof. Aside from that, it's fine.

4.) What I've been told is that they tried to refinance in the past, but the lady who holds the mortgage refused.

5) Yes. There are two normal bedrooms, the master bedroom, and then a really big room which basically amounts to a studio-bedroom that has it's own entrance. There are two bathrooms, and we have the master bedroom, so the three renters have to share the main bath. Of course, the renter's consist of a couple and their friend, so it's not that awful.

6) Definitely mixed. Neither of us like living here, him because it's his dead mom's house, me because I grew up in mobile homes and said I'd never live in one and also because I'm a gardener and this place isn't as big as I'd like. However, we do get to live basically rent free, from one perspective, and it is right next to the bike trail. Right now my husband rides 12 miles each way to school.

Don't worry, I don't mind answering questions.


Thanks for the detailed response.  Now let's cut to the chase:

Your mortgage is $600 a month, but you're pulling in $1200 in rent.  Since your husband  is in school (not working full time), it makes sense to stay put until you're both earning an income (on top of the equity being above water, adequate size of home, and proximity to bike trail). 

I would hesitate to refinance or pay any more on  the loan than I need to, because it looks like you both want to get out of there within a short time frame (4 years?) which negates the benefits of refinancing (closing costs) and places a premium on your liquid assets (which will allow you to move wherever the heck you want when the time comes).  On top of that, mobile homes are a depreciating asset so it makes sense to sell the property over the next 4-5 years to cash out as much equity as possible and flip it into a more price-stable conventional home.

Sometimes 29K in the bank earning nothing is better than 29K invested in stocks or real estate that is losing value.  When you have a more stable income situation, then it might make more sense to invest that liquid cash in stocks, bonds, real estate, etc.  But definitely don't spend it (any of it!) either.  Bank it for a rainy day -- or the sunny day when you put a juicy down payment on your family's future home (one that doesn't carry so much emotional baggage).

Best of luck!

gooki

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #16 on: May 06, 2012, 03:57:39 AM »
If we're working on the assumption of moving in 4 years, I'd still be paying down that mortgage tomorrow. $1,200 a month over 4 years is $57,000 without any interest gain. Which should be sufficient to allow one to "move where ever they want".

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #17 on: May 06, 2012, 11:42:40 AM »
Sometimes 29K in the bank earning nothing is better than 29K invested in stocks or real estate that is losing value. 


But that's a false choice.  She already has the money invested in real estate, the choice is whether to pay 7% interest on the $29k in order to keep it liquid, or use it to pay down the mortgage and make a guaranteed 7% return.  Given she owes less than half the given value of the real estate, it would need to lose more than half the value before it affects the $29k "investment".  And even then she would have to pay that money out from the bank if the property lost that much value and she had to do a short sell.


I still suggest paying off the mortgage in full and using a LOC to finance any needed expenditures the rent doesn't cover.

smedleyb

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #18 on: May 06, 2012, 03:09:43 PM »
Sometimes 29K in the bank earning nothing is better than 29K invested in stocks or real estate that is losing value. 


But that's a false choice.  She already has the money invested in real estate, the choice is whether to pay 7% interest on the $29k in order to keep it liquid, or use it to pay down the mortgage and make a guaranteed 7% return.  Given she owes less than half the given value of the real estate, it would need to lose more than half the value before it affects the $29k "investment".  And even then she would have to pay that money out from the bank if the property lost that much value and she had to do a short sell.


I still suggest paying off the mortgage in full and using a LOC to finance any needed expenditures the rent doesn't cover.

I say don't put all your eggs in one basket, in this case a mobile home.  I guess I just prefer real cash and not liquidity locked into a piece of land or a building or anything else which requires a bank in order to access. 

The interest savings of plowing every last liquid penny into that home is more than offset by annoying closing costs and the invasive process of income verification banks do before handing out loans (how much rent do you collect?, etc).

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #19 on: May 06, 2012, 06:20:54 PM »
The whole point of a HELOC is it's a loan against the home's equity, not against your future earnings (rent).

smedleyb

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #20 on: May 06, 2012, 08:11:48 PM »
The whole point of a HELOC is it's a loan against the home's equity, not against your future earnings (rent).

I was assuming a refi on the portion not paid off by the 29K, hence the income verification (and thus having to report all income and the subsequent tax implications). 

Also, this ain't 2006.  Go try to tap a Heloc with little or no income on a 30 year old mobile home. 

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #21 on: May 07, 2012, 07:54:47 AM »
The whole point of a HELOC is it's a loan against the home's equity, not against your future earnings (rent).

Try getting a HELOC without a job and then come tell me that.  In theory it's a loan against the equity.  But the equity is merely a necessary condition, not a sufficient one.   Plenty of people with no income can't get a HELOC.
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James

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #22 on: May 07, 2012, 09:16:07 AM »
The whole point of a HELOC is it's a loan against the home's equity, not against your future earnings (rent).

Try getting a HELOC without a job and then come tell me that.  In theory it's a loan against the equity.  But the equity is merely a necessary condition, not a sufficient one.   Plenty of people with no income can't get a HELOC.

She does have a job, which should allow her to get either a mortgage or HELOC at a low rate that can easily beat the 7% she is at.  She said she doesn't need $65k, she just needs enough for a couple years of educational expenses.  Whether the closing costs make the whole transition worth it would be the only question, but that can be determined easily enough by finding our what her options are before making a decision.  But I strongly believe she could get enough money out of the property to pay education expenses at a lower rate than keeping this $65k 7% mortgage.

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #23 on: May 07, 2012, 12:30:27 PM »
The whole point of a HELOC is it's a loan against the home's equity, not against your future earnings (rent).

Try getting a HELOC without a job and then come tell me that.  In theory it's a loan against the equity.  But the equity is merely a necessary condition, not a sufficient one.   Plenty of people with no income can't get a HELOC.

She does have a job, which should allow her to get either a mortgage or HELOC at a low rate that can easily beat the 7% she is at.  She said she doesn't need $65k, she just needs enough for a couple years of educational expenses.  Whether the closing costs make the whole transition worth it would be the only question, but that can be determined easily enough by finding our what her options are before making a decision.  But I strongly believe she could get enough money out of the property to pay education expenses at a lower rate than keeping this $65k 7% mortgage.

I was addressing grantmeaname's post, which I quoted.  My advice to the OP was earlier in the thread, to refinance the whole thing to current market rates.

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Re: Just out of college, inherited a house + mortgage, advice?
« Reply #24 on: May 07, 2012, 01:38:47 PM »
I was addressing grantmeaname's post, which I quoted.  My advice to the OP was earlier in the thread, to refinance the whole thing to current market rates.

Sorry, replied too fast and didn't put it in context with your actual advice.