topic Re: Need Advice in Mortgage Loans

Need Advice

Anonymous — Sun, 27 Jul 2008 18:55:47 GMT

We have an ARM that is coming due July 09. My plan was to continue building my credit score through this year, and do some improvements to the house and then refinance in early Spring 09. My credit score is as follows:

666 Experian

633 Equifax

633 Transunion

We haven't had a late payment since Nov 05. My goal is to get the credit scores over 700 by the Spring of 09. I have a WAMU Card and a Orchard bank card to help build my credit. WAMU just raised my credit from limit from 2700 to 4200 which gave my scores a bump, plus about 5 inquiries just dropped off.

My current rate is a little over 8% ...our payment is $1,900 on an original loan of $247,200 and $243,000 balance ($300,000 home value). DTI is 39%. With everything going on in the mortgage industry I am trying to decide if I should abandon my original plan and refinance ASAP? Any comments/suggestions would very much be appreciated.

Message Edited by Ontime on 07-27-2008 11:42 AM

Message Edited by Ontime on 07-27-2008 11:55 AM

Re: Need Advice

ShanetheMortgageMan — Sun, 27 Jul 2008 19:36:47 GMT

Where do you live and have home prices been going down much as of late? That would be my biggest concern, that by 7/09 your home might lose value to the point where refinancing makes it difficult... whereas now you have nearly 20% equity, which makes refinancing relatively easy.

Re: Need Advice

Anonymous — Sun, 27 Jul 2008 19:44:47 GMT

Thanks Shane. That is a good point. I live about 90 miles Southeast of WDC in Virginia. Things are not real bad but prices have backed off a bit (maybe 10%) and houses aren't really moving. I really wanted to get those scores up to get a better rate but waiting definitely has some downside.

Message Edited by Ontime on 07-27-2008 12:44 PM

Re: Need Advice

ShanetheMortgageMan — Sun, 27 Jul 2008 22:09:20 GMT

Well you'd have to evalulate your options now vs. your potential options then. Right now you could likely qualify for either an FHA mortgage or a conventional one, although the conventional would wouldn't have a very good rate unless you paid a lot of points to buy it down (although still much better than what you are at now)... and FHA would have the same rate whether you have your current scores or 700+ scores. With conventional financing, you can get the same rate as someone with 720+ scores if you are willing to pay 2.5% in points to buy the rate down. The rate on FHA with your current scores is the same as conventional financing if you had 720+ scores.

There is also both mortgage insurance on FHA and also on conventional if your loan-to-value is above 80% (which it is now, and if values are going the same direction as they have be, you definitely would be over 80% come this time next year). FHA's monthly mortgage insurance rate would be .5% of your loan amount per year divided over 12 months... at 80.01-85% LTV (where you are now) your conventional mortgage insurance rate would be .48%... so that's about even with a slight edge to conventional.

With FHA there is also a 1.25% upfront mortgage insurance premium (which is financed into the loan amount), and with conventional there is not. However if you translate the 1.25% upfront mortgage insurance premium to "points" you'd use to buy down your interest rate on conventional, you would still have a bit higher interest rate on conventional than you would on FHA. So right now the better loan to get your overall payment lower would be FHA than a conventional option.

If you were to use some time to raise your score up to the 700 level you are talking about, you take a chance on a few things: Your home value would decrease, putting you at a higher loan-to-value ratio, and thus a higher monthly mortgage insurance rate on conventional (at 85.01-90% LTV it's .72%). Second is that interest rates could be different (read: higher or lower). Lastly, guidelines for conventional financing could get more strict (I doubt they'll get more lenient until a couple years from now when Fannie & Freddie's stock prices go up quite a bit), FHA's have a chance too (if the housing bill that was just passed doesn't help out FHA's coffers), and mortgage insurance could become more costly or have additional limiting guidelines.

If it was me, and I could qualify for an FHA refinance right now... I'd go for the refinance rather than take my chances on what's available down the road.

Re: Need Advice

Anonymous — Mon, 28 Jul 2008 03:52:00 GMT

Ontime-

Is there a pre-payment penalty on your current home loan? If there is, that might be one other thing to consider before going ahead with the refi.

Re: Need Advice

ShanetheMortgageMan — Mon, 28 Jul 2008 03:56:31 GMT

WhirledPeasPlease wrote:

Is there a pre-payment penalty on your current home loan? If there is, that might be one other thing to consider before going ahead with the refi.

Truedat

Re: Need Advice

Anonymous — Mon, 28 Jul 2008 14:20:32 GMT

Yes, I had a 3 year arm but after 2 years I believe the pre-payment penalty dropped off. I need to go back and recheck my papers on that though. Thanks for pointing that out.

Re: Need Advice

Anonymous — Mon, 28 Jul 2008 14:50:52 GMT

My current loan is a conventional loan through Wilshire. Would it be worth my while to call Wilshire and see if they would refi me on a 30 year fixed? Otherwise I will refi elsewhere and they will lost the account.

Re: Need Advice

ShanetheMortgageMan — Mon, 28 Jul 2008 15:13:58 GMT

Wilshire does not make new loans, they only service mortgages. Odds are your loan was with First Franklin at one point, Wilshire purchased a whole bunch of their mortgages to service when Merrill Lynch took over First Franklin (horrible move on Merrill Lynch's part, you'd think they'd be smarter being they are a huge investment firm).

Re: Need Advice

Anonymous — Mon, 28 Jul 2008 15:47:08 GMT

Ontime wrote:

Yes, I had a 3 year arm but after 2 years I believe the pre-payment penalty dropped off. I need to go back and recheck my papers on that though. Thanks for pointing that out.

You're very welcome! Good luck!