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Dave or any other Mortgage guys! Refinancing ??

Posted by TeresaVA (My Page) on
Wed, Jun 11, 03 at 10:20

My husband and I bought a new house last year, and have decided to refinance to take advantage of the great rates. We expect to drop 1.375 interest points and about $200 a month. We should recoup the closing costs within a year, and plan to be in the house 2-3 more years, so it sounds like a good deal.

We are going with our existing company and doing the streamlined refinancing. Here's the one snag (maybe?) we've hit.

When we bought our house, we didn't have much money for down payment, so we did an 80/15/5 loan, to avoid PMI. Put down 5%, and then had 2 mortgages for 80% and the 15%.

My husband's uncle wanted to help us out and agreed to loan us the money (at interest of 3%) to pay off the 15% trust. We tried to do it before we signed the papers but it would have been a "gift" etc, and we didn't want to get into that mess, so we just signed the papers, waited a month, and paid off the second loan with no penalty. (& we send him a check each month)

With the paperwork for the refinancing, there is a question whether the house has a second mortgage, home equity loan, judgment, or liens, against it? Then if so, they want the information about it. In our situation, it's not a second mortgage right? Would our second "private" loan be considered a lien? Technically DH's uncle owns that "piece" of the house, not us. But on the other hand it seems like it should be a personal loan between us now & nothing to do with the mortgage company, since they got their money? I'd prefer not to tell them about the uncle's loan, (seems like things would go easier) but if we have to, then we have to.

Then if it is considered a lien (or one of the other options) the mortgage company talks about a subordination clause. To me, it sounds like they want to combine both loans, so we can pay off uncle, and have one outstanding loan with mortgage co. But that's not a good option for us, since our loan with his uncle is only 3% (much cheaper then what any mortgage co would give us) and seems like our monthly payment would go back up.

Would they let us keep this "private" loan and still do the refinancing for us? Or have we created a situation they won't like/allow?

So, I guess my two basic questions are:
1. Is our uncle's loan considered a lien or something like it?
2. What is the subordination clause about?

Sorry this post turned out so long, but I appreciate any help that you can offer.


Follow-Up Postings:

RE: Dave or any other Mortgage guys! Refinancing ??

I don't know exactly what a subordination clause is, but in general, they like you to pay off the second mortgage with the refinance. Your uncle's loan is not a lien. It's only a lein if you default on the loan, and he takes you to court, and puts a lien on the house. The purpose of the lein is to make sure that they get their money when you eventually sell the house. Anyone who you owe money to can have a lien put on your house, not just someone who holds a loan secured by the property, BTW.

Do you have any documents for the loan with your uncle? If so, does it say that the loan is secured by the property? If not, then this is a personal loan. It makes no difference that he lent you the money to pay off your second mortgage. You will probably have to disclose this loan to the lender, as they will want an accurate picture of all your debt, so that they can be sure that you are capable of paying back their loan, along with all your other debts, with your current income. Just be sure that they understand that this is a personal loan, and there is no existing documentation saying that it is a secured loan.

RE: Dave or any other Mortgage guys! Refinancing ??

Hi Teresa,

See answer posted at the Buying A Home Board;

Don't sweat Uncle's loan if he didn't specifically secure a lien against your property and record it at the county. You'll be fine!

Dave Donhoff
Just some mortgage guy ;~)

Here is a link that might be useful: That Home Site - Buying A Home

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