topic Re: Does refinancing make sense? in Mortgage Loans

Does refinancing make sense?

Paj315 — Mon, 19 Aug 2019 13:25:14 GMT

So for years we had been purchasing our house on contract. In the spring of this year the contact holder asked if we could get our own financing (he’s our 85 year old grandpa). So, we contacted a local mortgage company and began the process. We knew next to nothing about credit, so little, in fact, that i didn’t even have a credit score (still don’t) and my husbands mid score that the mortgage company used was 618. We qualified for an FHA loan. The closing costs were quite pricey and we had to buy down interest points. Overall, the mortgage was for $140,000 and the principal we owed grandpa was $136,000 plus we paid almost $7,000 at closing. Seemed to me the closing costs were way high.
We closed with an FHA loan of $140,000 at 4.75% interest a payment of $1036/mo ($303 of going to escrow). This obvs includes pmi because it’s fha.
So my question is- we’ve learned SO much about credit since February when i found out i had no credit score. SO much. My husbands scores are now around 750. I am currently awaiting my scores, my credit card hits 6 months in September but I have completely clean reports. We did just buy a new truck, hasn’t yet hit our reports, first payment isn’t even due until 9-22.

So I’m wondering if next summer (2020) when the truck loan (our newest account hits 1 year) if it would make sense to refinance to a conventional mortgage?
Would the closing costs for refinancing to conventional eat up the savings of the PMI? And possible lower interest rate?
Any input is greatly appreciated!!

Re: Does refinancing make sense?

NC_Mtg_Loaner — Mon, 19 Aug 2019 14:13:07 GMT

You are only going to eliminate PMI when you refinance out of an FHA loan when you have at least 20% equity in the home.

So we'd need to know how much the current home is worth.

You might want to conduct an FHA Streamline Rate/Term refi immediately so that you can reduce your current interest rate which would allow you to pay less each month on your mortgage loan while paying more in principle. If you were to complete that process and then be able to send additional money to the bank to pay principle then it's quite likely in a few years that yes you will soon be able to remove the PMI as you are generating more equity.

If you want to be more aggressive (and your credit score is better now than it was when you originally purchased as you say) you might want to consider refinancing now into a conventional loan---rates are lower enough now that you might see the same payment on a 20 year loan with PMI now as you have on your current FHA loan.....

However, in this environment, it's likely that you are one who would truly benefit from refinancing today....

Re: Does refinancing make sense?

Paj315 — Mon, 19 Aug 2019 14:46:14 GMT

Oh I forgot to mention the equity. Our house appraised for $217,000. We def have plenty of equity.

Re: Does refinancing make sense?

VALoanMaster — Mon, 19 Aug 2019 16:37:45 GMT

@Paj315 wrote:
Oh I forgot to mention the equity. Our house appraised for $217,000. We def have plenty of equity.

Hi Paj315,

Yes, refinancing to a conventional loan makes sense with that much equity.