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cobaltnv
Established Contributor

refi question

I bought a house in 2003 right before the big upswing in house prices here in Nevada. The house now appraises for approximately what I paid for it maybe a bit more (~190k paid 185k). My wife and I are thinking about purchasing a larger home and renting out our current house. With the loan rates so low we would like to refi our current house. We are wondering if this is a good idea if we want to then purchase a new house in a few months (possibly). Is there anything we need to be thinking about before doing this? I am not too worried about any potential credit score hit as we are both have FICOs in the neighborhood of 800.

 Our first mortgage is at 5.875% (~135k) with a 2nd mortgage at 8.125% (~15k). If we refi for 150k our total payments will be the same as our 1st mortgage. Seems like a no-brainer, which makes me think there is some drawback or pitfall I am missing. 

Thanks in advance for any help. 

TU 810: EQ 813: EX 814 (9/16/09--Loan officer pull)

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cobaltnv
Established Contributor

Re: refi question

I have been looking further into a refi on my current home (see previous post above). With a streamline refi can one fold in a second mortgage? I guess this would be considered cash out and therefore not allowed, but I wanted to check with the experts.

Thanks in advance for the help.  

TU 810: EQ 813: EX 814 (9/16/09--Loan officer pull)

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ShanetheMortgageMan
Super Contributor

Re: refi question

There could be a few issues.


First is that in order to use rental income from a primary residence being converted to a rental you need to have a certain amount of equity (25% for a new FHA loan and 30% for a new conventional loan).  So are you counting on using, or need to use, the rental income from your current primary residence in order to qualify for the new purchase?  If so, then for your situation you'd need to move out of the home, rent it, claim the rental income on your tax returns, and provide a lease... then the equity would not be required (it's also up to the lender to determine how long they want the lease to be going on for before they would consider the rental income).

 

Qualifying for a refinance takes into consideration many things, loan-to-value (which it appears you are nearing 100%), debt to income ratio, credit score, and reserves amongst the more important items.  Right now it's doubtul you'd do a whole lot better than 5.875% (in the low to mid 5's is where rates are at today), and there is the possibility you'd have to do that with bringing in a lot of money (potentially could be the closing costs plus your new mortgage amount couldn't be any higher than 97% of your homes value).  If you are comparing the payments on your existing mortgage to a new mortgage payment on a 30-year fixed, it appears you'd be saving money because your payments would be lower, but you are stretching your mortgage balance over another 5 years.  To compare apples to apples you should look at the payment on a new 25 year mortgage rather than a 30 year one, that will give you some numbers so you can do some preliminary calculations to determine if it'd be saving you money or not.  Also, not sure if you are paying property taxes/homeowners insurnace into a mortgage escrow account now, but over 80% LTV in Nevada and you need to set one up, so that could be something new on a refinance.  Lastly, you would need to qualify for a refinance, and depending on your situation would determine if conventional or FHA would be a better fit, plus the new purchase details have to be considered before you refinance too... as you don't want to shoot yourself in the foot by doing a refinance that would impair the ability to purchase.

So, if you have the equity to make refinancing worth it, and you have the ability to qualify for your new home without rental income, or can meet the requirements for using rental income ... then purchasing a new home is in the cards for you.

Free Mortgage Advice & Pre-Approvals (FHA, VA, USDA, Fannie, Freddie, Non-Prime, Construction, Renovation/Rehab, Commercial) since 2002
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Message 3 of 8
ShanetheMortgageMan
Super Contributor

Re: refi question


@cobaltnv wrote:

I have been looking further into a refi on my current home (see previous post above). With a streamline refi can one fold in a second mortgage? I guess this would be considered cash out and therefore not allowed, but I wanted to check with the experts.

Thanks in advance for the help.  


It's only a cash out transaction if the 2nd mortgage was non-purchase money, or if it's a HELOC and you took an advance on it in the last 12 months.  Streamline refinances can only be done with 1st mortgages, and are most common for FHA (while conventional programs might have streamline refinances it's not a true streamline refinance in the sense that there is no credit qualifying, no appaisal, etc.).
Free Mortgage Advice & Pre-Approvals (FHA, VA, USDA, Fannie, Freddie, Non-Prime, Construction, Renovation/Rehab, Commercial) since 2002
Located in Southern California and lending in all 50 states
Message 4 of 8
cobaltnv
Established Contributor

Re: refi question

Thanks for the help Shane. You have given me some things to think about. My wife and I should be able to qualify for a new home without considering any rental income from our current home so that is not a problem. I started thinking about refinancing our 1st and 2nd mortgage (from an 80/20/5 loan in 2003) when I saw interest rates from Wells Fargo in the 4.75% range. My calculations showed that if we could get an APR of 5% or so our new payments would be the same as our current first mortgage (for 25 years). Essentially we would eliminate our 2nd mortgage payment (~$225/month).

 

 

Thanks again Shane I really enjoy reading your posts here!!

Cheers 

TU 810: EQ 813: EX 814 (9/16/09--Loan officer pull)

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ShanetheMortgageMan
Super Contributor

Re: refi question

Welcome.  Refinancing will all come down to if you have the equity or not, and if you don't, if you don't mind bringing some funds in.  If it'd save you $225/mo (seems like a lot, is the 2nd mortgage a 15-year term? including the new PMI?) then you can figure you'd breakeven relatively soon, so even if you had to bring money in it'd probably make sense.
Free Mortgage Advice & Pre-Approvals (FHA, VA, USDA, Fannie, Freddie, Non-Prime, Construction, Renovation/Rehab, Commercial) since 2002
Located in Southern California and lending in all 50 states
Message 6 of 8
cobaltnv
Established Contributor

Re: refi question


@ShanetheMortgageMan wrote:
Welcome.  Refinancing will all come down to if you have the equity or not, and if you don't, if you don't mind bringing some funds in.  If it'd save you $225/mo (seems like a lot, is the 2nd mortgage a 15-year term? including the new PMI?) then you can figure you'd breakeven relatively soon, so even if you had to bring money in it'd probably make sense.
Yes the 2nd mortgage is a 15 year term. I got the good faith estimate today closing costs will be $3850 including the point I will pay to get the 4.875 % I will end up saving ~$250/month and have the loan paid off in the same time frame by adding extra principle to pay the 30 y in 25 years. The equity is certainly the question. My best estimate based on comparable sales I just barely will have 20% equity. Hopefully the appraiser sees it the same way.
Cheers 

 

TU 810: EQ 813: EX 814 (9/16/09--Loan officer pull)

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cobaltnv
Established Contributor

Re: refi question

Update: We sign the paperwork on our refinance on monday. Took almost 2 months to get the refi worked out. Turns out the slow step was the appraisal, it took 4+ weeks from the appraisers visit until his report. The good news is that my LO got our quoted rate (4.875) for 0.75 instead of 1pt. That will save us ~$375.

Thanks for everyones help on here (especially Shane). 

Cheers! 

TU 810: EQ 813: EX 814 (9/16/09--Loan officer pull)

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