I bought a my house 5 years ago at the age of 19 on a 5 year balloon plan with the option of after 5 year turning it into a traditional 30 year fixed mortgage with whatever the interests rates are at that time.
Sounds good since I was borderline qualified for the house
And the bank was going to give me a chance (at a price, 6.75%)
The mortgage is small ($43k) and I really have no problems making payments on it, but here is where I’m concerned.
Back then I had a job was making $30K a year.
Became self employed and did alright for a while, 28k-40k take home.
Then the shit hit the fan about a year ago, biggest contract for my business left, got into Credit card debt, paid late on my mortgage for probably 8 months straight, credit score is now low 600s
I’m back on my feet making good money again, but on paper I barely turned $7k last year profit.
My question is, will the bank look st my credit and income and just kick me out of the house since I’m no longer qualified? Will they refuse to renew my mortgage?
Have you asked the bank if they have the option to refuse to convert the loan?
If the contract says “may, at option of Lender”, you can worry. If it says “Borrower may”, you might have a guaranteed deal.
Ask.
Or get a lawyer to read the contract and answer.
p.s. - even if the lawyer says the bank must, if the bank doesn’t think so, what are you going to do? ASK.
If they will not deal:
There are always “hard money” lenders. Their motto is “At least we’re not the Mafia”.
Expect to pay about twice what you are now paying if those are the only lenders. And they load on equity, not income. Do you have plenty of equity?
Traditionally, S&L’s were easier on qualification, but who knows?
Find ONE specialty mortgage lender and chat. Be wary of signing the paper that gives them permission to pull your credit - that counts as a hard inquiry and dings your FICO.
You are entitled to one free report each year from each of the 3 reporting agencies. For openers, get one from your choice (they all have pretty much the same info) and pay the extra $10 to get the FICO.
Print it out and take it with you for the opening chat.
First, find out if you have a problem, then worry about how to fix it.
Technically, yes, they can foreclose if you don’t pay the balloon payment. But they probably don’t want to take your house any more than you want them to. The monthly payment on a new 30-year $43,000 loan at 5% is about $230 month. Even at a punitive 7%, it is only $286 per month. Is the house worth more than $43,000? If it is worth more with a comfortable margin, and you have gotten current on the loan and can demonstrate/explain how “I’m back on my feet making good money again” is more indicative of your situation going forward than the $7K profit that you made “on paper” last year, they will almost certainly approve you for some sort of loan. They are already invested in this property whether they like it or not, and they would prefer that you keep sending them some money every month for the foreseeable future rather than foreclose on you. If they charge you a high interest rate because of your recent past payment problems or because of your current situation, you can always take the loan (and thereby stay in your house) with the idea of refinancing once you are in a better position financially.
The first thing I would do would be to talk to your current lender about what options they might have available.
You should also talk to a mortgage broker and find out what they might be able to do for you.
Both will also be aware of various programs that also might be beneficial in your situation.
Good luck. Start the process sooner rather than later, in order to give yourself enough time to find a solution that works for you.
6.75 is not a terrible rate and interest rates do not look they are exploding anytime soon. Re a refi by the time you finish with loan fees and points etc you will probably be in the 5’s somewhere as a composite rate for a fixed rate mortgage . If the balloon is an option vs a requirement just continue to pay the note as it stands. The bank absolutely does not want your house back so them booting you is very, very unlikely.
Honestly the current note is so tiny were I you I would economize in other areas of my life and try to make double (or more) payments and try to get the thing knocked out in a few years. Try not to make any more late payments if at all possible as this is going to make any credit you need in the future considerably more costly to obtain. If they are willing to let you continue to pay the 6.75 be happy and move on that’s about the best deal you are going to get if you have 8 months of late payments on your record.