Mortgage refinance with a 589 credit score?

Through about two years ago we ran up some nasty credit card debt.

We stopped making payments on three cards, walking away from balances of roughly $50k, $40k, and $10k.

Two years ago we settled the biggest debt for about $21k.

We have an offer now to settle the next debt for $20k.

The third card has not been pestering us.

In that time (and before it), we stayed 100% current on our mortgage, paid off a car loan, and kept 100% current on an auto lease and other credit card debt (always paying in full).

Our joint income is again in good shape (almost twice what it was in 2009, our worst year), and we're looking to refinance our mortgage (6.75% for 20 years, $114k owed on $180k house), taking $20k out to settle the cc debt mentioned above.

However, not surprisingly, a 589 credit score is interfering with us getting a typical mortgage. Even an FHA loan, black and white, won't lend to 620 or lower.

I presume there are brokers and lenders out there who would give us the mortgage we're looking for - 15-20 year term, rate lower than current 6.75%, $20k cash out. But I also presume many are sharks and opportunists.

So I'm wondering which such brokers or lenders are out there, that people in our situation have had positive experiences with.

Thanks.

Even with a 620, I dont think FHA would touch you with that 3rd card still outstanding.....that is a lawsuit waiting to happen. Get that card resolved before thinking about a mortgage refi.

When you say "lawsuit waiting to happen" what specifically do you mean? And I apologize for my ignorance on this.

Would a solution be to get more cash out and use that to settle the third card?

My regular monthly cash flow could afford the mortgage, even without the lower rate I'd expect refinancing.

I think what soap meant is that an unresolved debt on your report could turn into a lawsuit at anytime. Especially one of that size. Collection agencies love seeing mortgage inquires on credit reports. It basically tells a collector there is money. When I see them on a report, my settlement offers lessen and my timeline tightens up. I know the debtor wants something. So if you haven't applied for a mortgage before settling that third card, keep it that way.

For these purposes, what is a mortgage inquiry?

Two prospective lenders that I've approached have pulled my credit report (that's how I know the score), but I have not formally applied for a mortgage.

Damage may already be done. When a credit report is pulled, it leaves an inquiry. The reports I pull code each type of inquiry, for example, mortgage, bank, collection. I collect student loans and if I pulled your credit report and saw a current mortgage inquiry, my eyes would light up. It means, at least to me, that I now have a big bargaining chip.

Thanks. You've been helpful here.

Another question: When you say "there is money" (hinted at by the mortgage inquiries) what do you mean?

I mean obviously if someone had unsecured debt like cc or student loan, and applied for a mortgage to buy a boat or a vacation, then yes, that's a red flag.

But if someone applied for a mortgage to get cash out of the house to settle the debt, wouldn't that be what a lender would want to see? No lawsuit, money received faster, all good.

Obviously "borrower intent" doesn't appear on a credit report, but what catches your eye? The idea that a borrower thinking they qualify for new or revised credit means they have more money so as to qualify?

What she is trying to say is that your accessible for the entire balance. Why do you feel that you should receive a discount of tens of thousands of dollars of credit card debt that you walked away from when you have the assets to pay the balance. After seeing a mortgage inquiry and once I saw the value and mortgage on the house currently I would not settle for less than 80% because the alternate is your sued and a judgement is placed for the balance and leins are placed and bank accounts are attached.

Exactly. They can see an existing mortgage so they know you are either refi'ing or buying a new house. Either way, they are not going to give as low a settlement if one at all...a collector can see the mortgage and can easily search what your home is worth to see what the equity is. Heck I used to do that 10 years ago execept I had to call the city appraisers to find out values. I had people who wanted to refi but knowing there was $20k equity to cash out on, why would I cut MY commission by settling for less than the full balance.