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P. Simmons
P. Simmons, Attorney
Category: Legal
Satisfied Customers: 32811
Experience:  16 yrs. of trial experience
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Can I take out a personal loan to consolidate credit cards

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Can I take out a personal loan to consolidate credit cards and use the quit claim to our home (my fiancé has the mortgage) as collateral. The house is worth 148,00 and the loan is only 55K  My Credit scores are in the low 700 and I have never been late on a payment.  I have proof of income.  Or should I use my car as collateral - but I owe 13K on it still - It is worth $30K - can I do that?

Thanks for the chance to help. I am an attorney with over 12 years experience. Hopefully I can help you with your legal question.

The quit claim to you makes it your property, legally

So you can certainly attempt to use that as backing for a loan.

But understand that the value that creditors will give is limited by the existing mortgage.

ALSO, understand that if you pledge this home as collateral, that could cause the current lender to discover the quit claim transfer...which could cause them to call the loan (demand it be paid immediately)

To a potential creditor a home is only worth the equity in the home. So, for example, if the home is worth $100K on the market today (if it would sell for that amount) and there is a mortgage for $80K? Then there is only $20K in equity. But you would not get that in a loan...not today. Since if you pledge this as collateral, the creditor is "second in line" behind the primary mortgage. So if there is a default, in order to collect, they have to foreclose....and then pay off the primary lender and the costs associated with foreclosure before they can get any of the principal back.

So a good rule of thumb is you need 25% equity before you can start to get a creditor interested in a loan for a home with a mortgage.

So...for that $100K home, you would need to owe less than $75K to start....if the primary loan was $50K, it may be a lender would lend $20K or so...

But that leads to the second problem...

You have to look at the original loan contract. If it is a conventional FHA mortgage there is most likely a clause in the loan that allows the bank to call the loan if title transfers.

If you have this clause, and you try and execute a 2nd? Once that is recorded, the primary lender will have notice and, most likely, will call the loan...will demand payment in full of the loan. IF you can not pay in full? They will sell the home at foreclosure auction to recover their money.

So it may be possible to do this?

But it also is likely not a very good idea

Customer: replied 3 years ago.

Both of our names are XXXXX XXXXX tax bill so wouldn't they already know that it has been quick claimed since the mortgage is in his name only. Or would they think because I live there that is why I am on the homeowners insurance. The house was recently appraised for 148K and the mortgage is only 55K. If it is not an FHA - would the bank still call the loan? Oh, the house is only 1/2 quit claimed to me. Would that make a difference? Also, can I use the equity in my car for the loan? It is worth $28K - I owe 12K but it is paid off in 12 months.

Most loans are FHA loans. But the provision is not unique to FHA loans...any loan could have that provision. YOu would want to look carefully at the loan documents to see if there is a "call" provision in the loan agreement

There may well be one (again, this is very common in mortgage loan agreements)

The fact they know about it but have not chosen to call it yet would not prevent them from calling it in the future. If there is such a provision, I would contact the lender and get assurance from them, in writing, that they will not call the loan if you take this action. OTherwise you are at risk of them selling the home out from under you.

The fact that the home is only 1/2 yours will not prevent them from calling the loan if there is a call provision in the loan.

As for equity, you can certainly pledge your car as collateral. But generally speaking, since a car is a depreciating asset (it gets less valuable over time) lenders are not typically excited about lending against equity in a car. They can...and some will. But generally a lender wants a non depreciating asset like real property as security.

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