Refinance w/401K or try to get modification from bank?
Let me preface this by saying that I haven't yet talked to the bank, a financial adviser, or a tax adviser. I need some initial direction and some guidance on even what questions to ask.
I was laid off from my job of 7 years last Thursday. I am a widow with a small child, and COBRA for us is $1100/month. Yes, I am looking into getting her on the state's insurance plan, and a private policy for myself, but my private policy will not be cheap. My bigger concern is my mortgage. I tried to refi over the summer, but the house appraised for less than I presently owe, and in order to refi, I would need to bring $70k to closing. I was willing to go $25K, but passed on $70K.
Even without the job loss, I needed to reduce the interest on the loan to get the payments more manageable for me. I called the bank, and they said that I could "apply" for a modification, but there was no guarantee I'd be approved, and that it would take months. FWIW, I do not have a Fannie/Freddie mortgage, either. There is no equity line or 2nd mortgage, just one crappy one.
So now I don't know if I should try to work with the bank. I've heard horror stories about people going back and forth with the bank only to have them foreclose anyway. Or should I cash out the 401K and refi down to a prime rate? If I even apply for the modification with the bank, my credit will tank, making it impossible for me to refinance.
I estimate that my savings and severance will hold us over for about 7-8 months. After that, between UI and my daughter's SS benefit, I would only have $600 left each month, after making the current mortgage payment.
I am very confused, overwhelmed, and absolutely terrified at the prospect of a long period of unemployment and the financial toll it will take on us.
Thanks in advance.