Any one with recent experience refinancing?

[Pipe Smoker]

After renting for years, my wife and bought our first home in early 2007. In hindsight we made a few mistakes - mainly paying too much and not putting enough down. We're not quite underwater but the house is worth a lot less than we paid for it. We're looking to buy something bigger in a better school district, hopefully in about 6-10 months. Right now my interest rate is at 6% and we're just about to cross the 20% mark, so we can finally stop paying PMI.

I'd be happy to sell my house for what we owe plus enough to cover the realtor's commission, but if that's not possible i would consider renting it until the market turns around or we have a bit more equity in it. I really just don't want to have to cut a check to leave the house.

So this is my question (assuming we'll stay in the house long enough to justify the closing costs) if the appraisal is roughly what we owe on the house, are they going to put us back in PMI, or will they be satisfied with the fact that we have already paid down 20% of the purchase price? Either way is there anything else I need to take into consideration, or is it simply whichever saves me the most money at the end of the day? Any other general advice about the process?

 

[punk_lawyer]

Virtually every bank deal that I am seeing right now is asking for a new appraisal to be done. In fact, if loans or refinance applications are denied right now there is a good chance that a low appraisal is the reason. You can likely get that interest rate reduced but I would not expect PMI to go away. This is a new deal commencing under current conditions so the current value of your house is the amount that is used.

Don't feel bad. Real estate values started getting shaky in '06 and '07 though '08 was the real estate crash. You probably paid a fair price back then.

 

[grateful1]

Sounds like you may have to wait things out a while longer.

What is the reason to refi exactly? To save on monthly payments?

note - I've found hte best to deal with have been Credit Unions - regarding new/refi loans.

 

[DePasta]

Yep if you get appraised for what you owe they will ask for 20% down to avoid PMI.....If it appraises for 20% above what you owe you will be OK.

Also, make sure when you look at closing costs, it is worth your while refinancing. In other words, if you have to pay closing costs, make sure you are going to be in the house long enough to recoup what you pay. For example if your payment decreases by $100 per month, it would take 2 years to recoup $2400 in closing costs.

 

[StatHaldol]

Last week we refinanced our little cabin on the lake. I was told as long as the amount financed was 80% or less than the appraised price, we wouldn't be required to carry PMI. It saved about $600 a year.

 

[sigar_zealot]

We're not quite underwater but the house is worth a lot less than we paid for it.

Right now my interest rate is at 6% and we're just about to cross the 20% mark, so we can finally stop paying PMI.

The 20% figure you see on your amortization schedule used the 2006-7 value to determine when you would cross the magical 20% number. You need owe at least 20% less than the current value to be released from the PMI requirement. Your mortgage company will most likely require you to obtain, at your expense a new appraisal to prove you owe 20% less than the home is worth.

Unfortunately low appraisals are the norm these days.

 

[jfields]

What is your current loan? FHA, or conventional? I assume conventional.

 

[Pipe Smoker]

Thanks fellas, I want to refi just because the rates are so low now. I don't want to find myself carrying the house in, say, 5 years when rates have gone back up, and kick myself for not locking in 3.5%. I know closing costs are a factor, the last time I looked into it, it would only take about 1 years to recoup the costs so, I think we'll be alright on that front.

I hindsight I think I made, were:
(1) letting the realtor talk us out of putting down 20% as we intended,
(2) buying a house that had been upgraded out of the price range of the other houses in the neighborhood - we really wanted to be a in a particular section of the city with very hold homes (ours was built in 1912) but we also wanted a modern kitchen and central air, at the time we paid about $20k more than anything else in the area, which seemed reasonable, but now the disparity is grown larger,

I also I wish we had paid a little more attention to the school district, but we didn't plan to stay here for more than 5 years so we didn't really take the schools into account.

I am fortunate that we were disciplined enough not to buy more house than we could actually afford, so we can happily stay in the house if we needed to.

We're not quite underwater but the house is worth a lot less than we paid for it.

Right now my interest rate is at 6% and we're just about to cross the 20% mark, so we can finally stop paying PMI.

The 20% figure you see on your amortization schedule used the 2006-7 value to determine when you would cross the magical 20% number. You need owe at least 20% less than the current value to be released from the PMI requirement. Your mortgage company will most likely require you to obtain, at your expense a new appraisal to prove you owe 20% less than the home is worth.

Unfortunately low appraisals are the norm these days.

Do you mean that even if I do nothing, the mortgage company can make me reappraise the house to get out of PMI? I thought as soon as I pay off 20% of the purchase price they have to let me out of PMI, unless I do something to alter the loan. No?

 

[jfields]

Thanks fellas, I want to refi just because the rates are so low now. I don't want to find myself carrying the house in, say, 5 years when rates have gone back up, and kick myself for not locking in 3.5%. I know closing costs are a factor, the last time I looked into it, it would only take about 1 years to recoup the costs so, I think we'll be alright on that front.

I hindsight I think I made, were:
(1) letting the realtor talk us out of putting down 20% as we intended,
(2) buying a house that had been upgraded out of the price range of the other houses in the neighborhood - we really wanted to be a in a particular section of the city with very hold homes (ours was built in 1912) but we also wanted a modern kitchen and central air, at the time we paid about $20k more than anything else in the area, which seemed reasonable, but now the disparity is grown larger,

I also I wish we had paid a little more attention to the school district, but we didn't plan to stay here for more than 5 years so we didn't really take the schools into account.

I am fortunate that we were disciplined enough not to buy more house than we could actually afford, so we can happily stay in the house if we needed to.

We're not quite underwater but the house is worth a lot less than we paid for it.

Right now my interest rate is at 6% and we're just about to cross the 20% mark, so we can finally stop paying PMI.

The 20% figure you see on your amortization schedule used the 2006-7 value to determine when you would cross the magical 20% number. You need owe at least 20% less than the current value to be released from the PMI requirement. Your mortgage company will most likely require you to obtain, at your expense a new appraisal to prove you owe 20% less than the home is worth.

Unfortunately low appraisals are the norm these days.

Do you mean that even if I do nothing, the mortgage company can make me reappraise the house to get out of PMI? I thought as soon as I pay off 20% of the purchase price they have to let me out of PMI, unless I do something to alter the loan. No?

Depends on the type of loan you have. That's why I asked if you have conventional or FHA.

FHA you have to carry PMI for the life of the loan currently.
FHA has a streamline program right now where you can refinance with no closing cost or an appraisal.

Conventional you don't have to pay PMI with 20% or more equity, but would have to have an appraisal, and would end up paying closing cost.

 

[sigar_zealot]

Dave,
You are confusing what 20% ownership actually means. Crossing the 20% barrier for a value that no longer holds means nothing. The current value is all they will be looking at when they consider letting you out of your PMI payments. The burden of proof is always on the owner/buyer to prove they have surpassed the PMI requirement which is where the new appraisal comes into play. It sounds like you put down 10-15% when you could have done 20% on a conventional loan. Every mortgage company I have spoken to requires a new appraisal to get the current value to release the PMI requirement unless you are way over the 20%. Then they may accept a Brokers Opinion of Value.

Sorry to give you the bad news.

 

[Pipe Smoker]

Dave,
You are confusing what 20% ownership actually means. Crossing the 20% barrier for a value that no longer holds means nothing. The current value is all they will be looking at when they consider letting you out of your PMI payments. The burden of proof is always on the owner/buyer to prove they have surpassed the PMI requirement which is where the new appraisal comes into play. It sounds like you put down 10-15% when you could have done 20% on a conventional loan. Every mortgage company I have spoken to requires a new appraisal to get the current value to release the PMI requirement unless you are way over the 20%. Then they may accept a Brokers Opinion of Value.

Sorry to give you the bad news.

.

Well that sucks.

If someone initially put 20% and never had to pay PMI, could the bank come back and force them to start if the home loses value?

Mine is a conventional loan, not FHA.

 

[Charley]

There is more to consider. Yes, when you refi the bank will order an appraisal. Everything will be based off of this value. The 3 main reasons borrowers use an FHA loan is:

A. Their credit score is too low. Banks require a minimum score of 680 for a conventional loan but only a 640 for FHA.

B. They don't have enough down payment. You need at least 20% for conventional but only 3.5% for FHA.

C. Their debt-to-income ratio is to high. For conventional, banks don't like it to be more than 42% of your gross monthly income but with an FHA loan they will let you be as high as 48%.

If the balance that you are trying to refi is more than 80% of the appraised value then you will either need to pay it down or go with another FHA loan. What you also needs to keep in mind is that the FHA has raised its premiums in the last few years. I'm gonna assume that when you bought your house the up front premium was 1.25% of the purchase price. So if the loan was for $200,000, the up front payment would be $2,500. This is usually added into the loan along with your closing costs. Then the monthly premium was 0.55% divided by 12. So on a $200,000 loan the monthly premium would be $91.67. As of April 2012 the premiums have changed. The up front premium is now 1.75% and the monthly number varies. If your loan to value ratio is between 81% and 95% it is 1.2%. If it is above 95% then it is 1.25%. So now the same $200,000 loan would cost you an up front payment of $3,500 and a monthly payment of $200. So while you will save money on your p&i payment because of the lower interest rate, you will be paying a lot more in insurance premium. You'll still pay less every month but not by as much as you'd think.

 

[sigar_zealot]

Dave,
The answer to your question is no. Once the loan is in place the lender can't change the terms or conditions of the loan.

Charlie,
When did they do away with 10-15% down conventional loans? I've closed a few 10% and 15% down conventional loans this summer.

 

[Charley]

I know there are some loan programs that dome require the 20% down. There is one that goes as high as 95% but even though they call it conventional there is still pmi, they just work it into the rate. It can get real aggravating when there are good programs out there but you want find a lender that will loan on them.

 

[MarkJr]

So there is a program that FHA offers and if you closed originally before 5/2009, which you did you do not have to go back to pmi payments. The only other stipulation is that the loan has to be currently held by fannie Mae or Freddie Mac. Some banks will even offer programs that if your loan has over 20 years still left then they won't extend you back out either. I work for citizens bank and I have to talk about this all day? Where do you live? If its anywhere in the northeast or Midwest you could go to your local citizens or charter one branch for more info. And the best part about FHA is that everyone has the same rate. Any bank could do this for you.

 

[sigar_zealot]

I have had no problems finding conventional loans for my clients at a 90% LTV ratio as long as they have decent credit. And (as you know) yes they pay PMI to start but unlike an FHA loan there is no up front MIP and the PMI payments can go away without the need to refinance.

Mark,
FHA has a loan program that offers a no PMI? This is news to me. What is the name of this loan program? Surely there is a loan to value ratio requirement here.