Hello everyone, I'm looking for some advice since I'm new to mortgages. We signed the contract for a new construction home (which will be our first home) back in April 2021. With all the delays, they just started construction last week and estimate it will take 6 months. Now, when we signed, we locked in the purchase price. The home and surrounding homes seem to be valued much higher now (something like 14%+). When we close, we will basically receive a nice chunk of equity right away (aside from whatever down payment - 0% or 5% - that we choose).
I'm trying to think of how we can take advantage of that equity.
One scenario I'm thinking of is that if we use Navy FCU, we could do their 0% down and get something like ~4.75% (or whatever the rate is in 5 months) with the plan to refinance very quickly after to get their ~3.375% rate (on up to 95% LTV) as if that free equity was actually like a 5% downpayment. The only issue here would be paying whatever refinance closing costs for a second loan (which are much lower than all the fees associated with a purchase, right?). With Navy, PMI isn't a cosideration since they don't require it.
Another is that we could use the preferred lender (if the rate + $4,000 closing cost credit ends up better). Here the consideration would be to refinance as soon as the LTV is low enough to remove PMI. I think it has to be 75% to remove PMI after 2 years, but only 80% to remove after 5+.
From what I understand, in the initial mortgage they will use the lower value of either the purchase price or the appraised value. That means that even if the appraised value is 14% higher than the purchase price, it has no effect on the initial mortgage. I wonder if the same lender could immediately process a new mortgage with all the same info (credit pulls and appraised value) from the first mortgage that has just closed.
I'd like to hear any thoughts you have on those two scenarios as well as any other scenarios you think should be in the running. I'd also love to hear about how closing costs on a refinance differ from a purchase of a new construction.
I appreciate any help you can provide!
@VALoanMaster wrote:Most lenders will go with the lower of the sales price or appraised value in the first year.
Oh man. I know they use the lower to close on the loan. You're saying even for a year after closing they'd still use the lower of the two? As in I couldn't use the difference between sales price/appraised value to refinance until a year has passed?
I had understood that you could refinance at any time.
@dragontears wrote:
@MickeyGMoney wrote:
@VALoanMaster wrote:Most lenders will go with the lower of the sales price or appraised value in the first year.
Oh man. I know they use the lower to close on the loan. You're saying even for a year after closing they'd still use the lower of the two? As in I couldn't use the difference between sales price/appraised value to refinance until a year has passed?
I had understood that you could refinance at any time.You can refi at any time. The trick is finding a lender that will let you pay for another appraisal and use that for the LTV calculation. If you find one, please let me know as I have not.
@dragontears So you're saying that you haven't found a lender who will use an appraised value over the purchase price? I understand for the initial loan that is the case. Are you confirming that it is rare for a lender to use a higher apraised value (as opposed to the purchase price) during about a year after initial purchase?
It seems to me that when you go to refinance, they do an appraisal and use that appraised value. It's just different in the case of the first year?