Before you make any phone calls, here are a few things I recommend to anyone looking at getting a mortgage:
1. Pull your credit report - you can get all three bureaus free at
www.annualcreditreport.com. Review your credit across the board and look for any errors reported by creditors. If there are issues with inaccuricies, contact the creditor and fix them. Remember, not all creditors report to all thre bureaus on a consistent matter.
2. Visit
www.creditkarma.com - you can enter some basic information and get your credit score from TransUnion for free. This is only one score, but it will get you in the ballpark of what your other credit scores look like. The lender going to qualify you on the lowest middle score between you and your co-borrower.
3. Understand your Debt to Income (DTI). Most lenders are anywhere from 41% to 50% of your gross monthly income going towards debt. Add up all the credit related debts you pay on a monthly basis - car loans, student loans, personal loans, and mortgage payment. You want to take the minimum payment on credit cards, and the full payment on the other loans. If more than 41-50% of your gross monthly income is going to pay debt, lenders will frown upon this. You need to ask the lender what their maximum DTI is. Also, if based on the minimum payment, you will have a debt paid off in less than ten months, you don't have to count it towards your DTI, unless it is a car lease.
4. Talk to a realtor to help you determine an approximate value of your home. Don't look at what houses on your street or neighborhood are for sale for, you need to know what comparable houses sold for, preferrably in the last 3-6 months, with the newer the better. You need your realtor to be honest with you. The comparables need to be within one mile of your home, and be similar in square footage, number of bedrooms, bathrooms, and floor plan. You can't compare a ranch with a two-story.
5. Since you would be doing a cash-out refinance transaction (rolling the personal loan into a new mortgage) most lenders consider this a higher risk, and you may not be able to borrow as much money, and may have a higher interest rate. You need to determine who the investor is on the existing mortgage (FannieMae, FreddieMac, GinnieMae, or a private investor). FannieMae for a cash out will only allow you to borrow 85% of the homes appraised value. You can visit
www.makinghomeaffordable.com to determine who is the investor on your existing loan. A limited cash out transaction (less than 2,000 or 2% of the loan value back to you at closing) is up to 95% loan to value.
6. Talk to your current lender - are you really unhappy with them, or do you think you can find better rates elsewhere? The advantage you have with your current lender is they may have programs available to help you refinance and get a better rate. You may not be able to payoff the personal loan, but you could lower your house payment enough to give you more cash back each month to help pay the personal loan. The other thing your current lender can do is transfer your escrow account to the new loan, this can help lower your closing costs, because it essentially becomes a credit towards the new loan. As a reminder, you are paying property taxes this month, so you won't transfer as much, but every little bit helps. I refinanced with my current lender, and was able to do a "no documentation" streamline refinance, because they already had my loan on their books, they were bettering my situation (a lower payment for me, means I'm less likely to default), and they weren't taking a new risk because I was already on the books.
7. If you decide to go forward, make sure you get a copy of the Good Faith Estimate from the lender - it's required. This will show you what the fees will be to close the loan as estimated by the lender. The lender must adhere to these fees once they disclose them to you. If the total of the fees paid to third parties (appraiser, title company) go 10% above the estimate, the lender must creit you to get them down to the 10% level. Also, look at their origination charge, do they charge 1% of the loan amount, or a flat-fee? As for shopping around, you can look at up to three lenders and have them pull credit and it won't hurt your credit. Just be prepared to explain the credit inquiries with the lender you choose. Also, if you have had pre-approval credit offers, or opened a new credit account in the past 90 days, you may have to explain it to your lender.
As for your improvements, I agree with the others, while they are a benefit to you, they don't add much to the value of your home. They would be seen as routine upkeep on a home, other than the basement, since you added some living space. However, basement living space is usually 1/2 the value per square foot of above ground living space. I spent about 30k (including labor) to finish my basement (lots of custom items) and the appraiser told me it gives me 15k in value. I'm ok with it, but don't expect it to be a big return on investment. As for the bathroom and kitchen, depending on what you did, you may get some money. Kitchens and baths just don't add the value they did for awhile, unless they are custom, but you have to be careful not to over-improve your home for the neighborhood, as this can actually hurt the value.
Hope this helps - don't be afraid to ask questions of your lender. An honest lender won't be afraid to answer them.
