I refinanced my mortgage last year out of pure necessity. I had decided to build a 1 bedroom apartment out of my un-used garage space and the construction costs went way over budget.
To add insult to injury, I got laid off shortly after I finished construction. I lost about 3 months worth of salary, then resumed work only to get in a bad car accident after I got back to work and lost about another 2 months of salary. I was living off of credit cards almost 5 months and now have over $45,000 in consumer debt ($23,000 auto loan and $22,000 in credit cards).
The good news is, work has stabilized. I'm able to rent the new apartment for an average of $1800 / mo. I've got a decent tax return (approx $10,000) and there's a good chance I'll get about $40,000 for "pain and suffering" in an injury case (not a guarantee, but highly likely).
My principle on the house is $285,000. It's a 30-yr Fixed FHA loan at 4.5% (I have some collection items dragging my credit score down (approx $3000 in medical) and a bad debt/income ratio. My average FICO score is about 625.
I spoke with Loan Depot (current mortgage company) about 2 potential refinance programs:
- 30-yr Conventional @ 4.5% apr, $8,000 cash out, principle increase to $308,000
- 30-yr FHA @ 4.5% apr, $18,000 cash out, principle increase to $313,000
My main goal is to pay off debt, but I also have other investment projects I want to pursue. One would be adding another apartment to the basement and potentially getting another $1,800 / mo cash flow. This would be about a $30,000 project
Most of my consumer debt is at obscenely high interest rates (15% for the car and 29.9% for most the cards). This bothers me, but not enough alone to refinance again. While my monthly payments on cards is nearly $1000, $500 of that is for short term loans that will be paid off in the next 2-3 months.
My question is, what should I pay first, and how? Should I start the basement apartment construction this spring? Should I apply all/some of my tax return/injury settlement towards credit cards? Should I move to a conventional loan and drop nearly $250 / mo in PMI payments?