A Quick Question: Should I Refi?

July 22, 2009 by 2 Comments

This comment was left on a post I did a while back about how you don't really skip two payments when you're refinancing since mortgage interest is accruing.  I thought this comment was worthy of a post of it's own.

Hi Rhonda!
I found your website on a Google search and I have a quick question for you. I need some advice. Here are the specifics.

Current MTG Loan balance is $161,927.28 with 28.5 years left at 5.5%
My TOTAL payment a month including taxes, etc. is $1278.

Proposed FHA Streamline Refi is for $167,779 for 25 years @ 5.0%
My TOTAL payment a month including taxes, etc. would be around $1290.

Out of pocket Expense $0.

Positives?
Negatives?

We plan on being there another 7-10 years.

If we do this, there is talkof the double Mtg skip, and a refund of MIP.

I know they aren't really skipping, nor the refund an actual refund, because the total loan amount is more than my current balance, kind of a wash. But there is still about a $1700 difference.

I could really use the $ to payoff a few things, even though I'm really rolling it into the new loan.

Is this really that bad of a deal?
Any advice or counsel is much appreciated!

Thanks!

RC

First of all, it's great RC is weighing out the long term value before proceeding with the refinance.  Often, home owners may refinance blinded by what seems to be an attractive rate or payment without considering if they'll break even.  Other factors besides the cost or savings is the effort it takes to accommodate a refinance.  Even an "easy" transaction is going to require some work on the home owners part with providing documentation, completing forms and signing final loan documents (an FHA streamline does have reduced documentation).

I'm always a bit concerned when a loan originator sells "skip two payments"…this shouldn't be a sales point by anyone who considers themselves a "mortgage professional".   You can check out my original post to see why.

There is no monthly out of pocket savings with this scenario.  In fact the payment would increase by $12 per month.  I'm assuming the savings of $1700 has to do with the illusion of skipping mortgage payments.

RC states there is no out of pocket expense but I'm unsure if this means it's a "zero cost loan" or if the closing costs are rolled into the new loan.

There is no refund of the upfront MIP.  A portion is credited towards the new loan with an FHA Streamline refinance.

The principal mortgage balance will be increasing by about $5,852 however the term is being reduced by 3.5 years.  With regards to the 25 year term, I'm not finding any lenders that we work with (and we are an approved FHA/HUD lender) who offers a rate improvement with a 25 year amortized amortization over the 30 year.

It sounds like you're focusing on the potential $1700 savings and if this is what's important to you, I probably would not increase my mortgage payment by $12 a month even though it would be reducing the term. 

So there are my pros and cons to consider with this proposed transaction based on the information that you've provided, RC.   Without having all of your actual details, you need to take my advice with a grain of salt.

PS: I rarely ever really get a "quick question" that has a "quick answer". LOL 😉

 

 

Filed Under: FHA, Refinance

HUD Approves First Time Home Buyers Using Tax Credit Advance for FHA Loans

May 30, 2009 by 1 Comment

There's been a lot of rumbling about whether or not first time home buyers would be able to access the tax credit created by The American Recovery and Reinvestment Act of 2009 towards the purchase of their new home.  From HUD's announcement yesterday:

Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5 percent minimum down payment, but, under the terms of today's announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate. Buyers financing through state Housing Finance Agencies and certain non-profits will be able to use the tax credit for their downpayments via secondary financing provided by the HFA or non-profit. In addition to the borrower's own cash investment, FHA allows parents, employers and other governmental entities to contribute towards the downpayment. Today's action permits the first-time homebuyer's anticipated tax credit under the Recovery Act to be applied toward the family's home purchase right away.

Here are some important points for you to know regarding using the tax credit towards a home purchase:

  • The tax credit advance loan cannot be used towards the mandetory 3.5% down payment.  (Update: unless it is through a State Housing Financing Agency).
  • The tax credit advance loan may not exceed the anticipated tax credit due to the home buyer based on the computations of form IRS 5405. 
  • The borrower will need to provide a copy of their tax refund and/or form IRS 5405.
  • Borrower cannot have unsettled obligations with the IRS.
  • If the tax advance is in the form of a loan with payments, the borrower must qualify with that payment (unless the payments are deferred for at least 36 months).

Reminders about the First Time Home Buyer Tax Credit…

You can claim the tax credit if:

  • You purchased your main home after April 8, 2008 (who picked that day?) and before December 1, 2009.
  • You (and your spouse, if married) did not own any other main home during the 3 year period ending on the date of purchase.

The IRS defines "main home" as the one you live in most of the time.  It can be a house, hosueboat, housetrailer, cooperative apartment, condominium, or other type of residence.

You cannot claim the tax credit if:

  • Your modified adjusted gross income is $95,000 or more ($170,000 or more if married filed jointly).
  • Your home financing comes from tax-exempt mortgage revenue bonds.
  • You are a nonresident alien.
  • You aquired your home by gift or inheritance.
  • You acquired your home from a related person.

You must repay the tax credit if your home ceases to be your main home within the 36 month period beginning on the purchase date.  

HUD warns that homebuyers should beware of mortgage scams and carefullly compare benefits and costs when seeking out tax credit monetization services.

Don't forget, Mortgage Master is a direct endorsed HUD lender.  If you're buying a home in Washington State and are interested in an FHA loan, I'm happy to help you.

Filed Under: FHA, First Time Home Buyer, Residential Purchase

Mortgage Master now has Streamlined FHA 203(k) Loans!

May 13, 2009 by 1 Comment

May 2010 UPDATE:  Mortgage Master Service Corporation will no longer do "streamlined" refinances–however we WILL do full 203k rehab mortgages.

Streamlined FHA 203(k) mortgages are intended for "lighter" repairs or improvements to a home.  The rehab amount is limited to a maximum of $35,000 and the minimum repair cost is $5,000.   Here is an example of eligible improvements:

  • Repair or replacement of roofs, gutters and downspouts.
  • Repair or replacement of existing heating, ventilation and/or air conditioning system.
  • Repair or replacement of plumbing and electrical systems.
  • Repair or replacement of flooring.
  • Minor remodeling that does not involve structural repairs.
  • Exterior and interior painting.
  • Weatherization, including storm windows and doors, insulation, weather stripping, etc.
  • Purchase and installation of appliances.
  • Improvements for people with disabilities.
  • Lead-based paint stabilization.
  • Repair, replacement or addition of exterior decks, patios, porches.
  • Basement finishing and remodeling that does not involve structural repairs.
  • Basement waterproofing.
  • Replacement of windows and doors and exterior wall re-siding.

The loan amounts are based on current FHA loan limits.  In King, Pierce and  Snohomish counties, the current FHA loan limit is $567,500.  This program is available for purchase and refi's.

If you're interested in a FHA Streamlined 203(k) mortgage for your home located in Washington State, please contact me.

Filed Under: FHA

FHA Appraisals Tougher starting April 1st – No Foolin’

March 26, 2009 by Leave a Comment

HUD is adopting Fannie and Freddie's reporting requirements for declining markets.  Per Mortgagee Letter 2009-09, as of April 1, 2009 appraisals for all FHA insured mortgages must include the Market Conditions Addendum.   Be preparared for second appraisals and limits to cash-out refinances if your property is determined to be in a declining market.   From HUD's letter:

"a declining market is considered to be any neighborhood, market area, or region that demonstrates a decline in prices or deterioration in other market conditions as evidenced by an oversupply of existing inventory or extended marketing times."

In addition to providing three recent comparables (properties similar to home being appraised that have recently closed in the area); appraisers are required to:

  • At least two of the three recent sales (comparables/comps) must be within the last 90 days of the effective date of the appraisal.
  • Include a minimum of two active listings or pending sales.  The appraiser must insure the active listings and pending sales "have reasonable market exposure to avoid the use of over priced properties as comparables."
  • Include the original list price, any revised prices and total days on the market.
  • Adjust active listings to reflect list to sale price ratios for the market.
  • Adjust pending sales to reflect the contract purchase price whenever possible or adjust pending sales to reflect list to sales price ratios.
  • Include an absorption rate analysis to determine market trends.
  • Known or reported incentives or sales concessions must be noted for any comp that's used on the appraisal.

To read the entire Mortgagee Letter, click here. 

Filed Under: Appraisals, FHA

New FHA Limits on Cash-Out Refi’s

March 17, 2009 by Leave a Comment

If you're considering refinancing and you're interested in taking cash-out to pay off debts, make home improvements or to eliminate a second mortgage that you did not obtain when you purchased your home; you have more reason than ever to start now.

Effective on FHA case numbers issued on or after April 1, 2009; FHA will only insure cash-out refinances when the loan to value is 85% or lower than the appraised value.  Your appraised value is not based on what you feel your home is worth — it's based on what your neighbor's have sold their homes for in the past few months.

If you have owned your home for less than 12 months, FHA is limiting cash out refinances to which ever is lower: 85% of the appraised value or 85% of the original sales price. 

According to HUD's Mortgagee Letter 2009-08, this is currently a temporary requirement:

"Given the continued deterioration in the housing market, and FHA's need to limit its exposure to undue risk, this reduction to the maximum LTV for cash-out refinances is being instituted on a temporary basis while FHA further analyzes the housing and mortgage industry as well as its own portfolio to determine whether permanent measures should be taken."

Well, what are you waiting for?  You have two weeks as of today for FHA's expanded cash out guidelines of 95% loan-to-value with loan amounts up to $567,500 in King, Pierce and Snohomish counties.   If your home is located in the State of Washington, and you're interested in refinancing, you can apply on line (under Favorite Links).  By the way, I have been originating FHA mortgages for nine years and we have in-house FHA underwriters at Mortgage Master…as I mentioned, I can only help you if your home is in Washington.

Filed Under: Debt Restructuring, FHA, Refinance, Underwriting and Qualifying

Revised FHA Loan Limits for 2009

February 25, 2009 by Leave a Comment

King, Pierce and Snohmish Counties

1 Unit – $567,500

2 Unit – $726,500

3 Unit – $878,150

4 Unit – $1,091,350

San Juan County

1 Unit – $593,750

2 Unit – $760,100

3 Unit – $918,800

4 Unit – $1,141,850

Kitsap County

1 Unit – $475,000

2 Unit – $608,100

3 Unit – $733,050

4 Unit – $913,050

Clark and Skamania Counties

1 Unit – $418,750

2 Unit – $536,050

3 Unit – $648,000

4 Unit – $805,300

Jefferson County

1 Unit – $437,500

2 Unit – $560,050

3 Unit – $677,000

4 Unit – $841,350

Clallam County

1 Unit – $383,750

2 Unit – $491,250

3 Unit – $593,800

4 Unit – $738,000

Island County

1 Unit – $381,250

2 Unit – $488,050

3 Unit – $589,950

4 Unit – $733,150

Whatcom County

1 Unit – $375,000

2 Unit – $480,050

3 Unit – $580,300

4 Unit – $721,150

Skagit County

1 Unit – $373,750

2 Unit – $478,450

3 Unit – $578,350

4 Unit – $718,750

Thurston County

1 Unit – $361,250

2 Unit – $462,450

3 Unit – $559,000

4 Unit – $694,700

Mason County

1 Unit – $310,000

2 Unit – $396,850

3 Unit – $479,700

4 Unit – $596,150

Kittitas County

1 Unit – $328,750

2 Unit – $420,850

3 Unit – $508,700

4 Unit – $632,200

Benton, Franklin Counties

1 Unit – $275,000

2 Unit – $352,050

3 Unit – $425,550

4 Unit – $528,850

No FHA loan limit revisions to the following Washington State counties:

Chelan and Douglas Counties

1 Unit – $342,700

2 Unit – $438,700

3 Unit – $530,300

4 Unit – $659,050

Adams, Asotin, Columbia, Cowlitz, Ferry, Garfield, Grant, Grays Harbor, Klickitat, Lewis, Lincoln, Okanogan, Pacific, Pend Oreille, Spokane, Stevens, Wahkiakum, Whitman and Yakima Counties:

1 Unit – $271,050

2 Unit – $347,000

3 Unit – $419,425

4 Unit – $529,250

Filed Under: FHA

Got Stimulus?

February 19, 2009 by Leave a Comment

Earlier this week, President Obama signed H.R. 1, The American Recovery and Reinvestment Act of 2009, to the tune of $787,000,000,000. This is roughly the same as giving every American man, woman and child $2,500.  President Obama announced that we can see how the funds are being spent by visiting www.recovery.gov.

Here are a few items designed to help the housing markets:

Loan Limits to be Reversed 2008.  At the end of 2008, the conforming jumbo limits were replaced with conforming high balance.  In the Seattle area, this meant that the fine line between a jumbo and conforming mortgage went from $567,500 to $506,000 for a single family dwelling.  Watch for Fannie, Freddie and FHA to implement the higher loan limits soon through December 31, 2009.

2009 Tax Credit for First Time Homebuyers. A tax credit up to $8000 is available to first time home buyers (someone who has not owned a home in the past 36 months) who close on a home between January 1, 2009 – November 30, 2009.  Unlike the 2008 plan, this tax credit does not have to be paid back.

NOTE:  If you are a qualified first time home buyer who bought a home from April 9, 2008 – December 31, 2008; you're still under the original plan with the $7,500 credit which requires you to pay it back (interest free loan).  

More to follow….much more.

Filed Under: Fannie, Freddie and FHFA, FHA, Legislation

The FHA Streamlined Refinance

February 5, 2009 by 3 Comments

EDITORS NOTE August 23, 2009:  With any mortgage information that you find on the internet, whether it's from a blog or website, be mindful that guidelines are changing constantly in this current climate and information may not be totally up-to-date. 

September 29, 2009:  HUD has issued revisions to FHA Streamlined refi's which will be effective mid-November.

If your existing mortgage is FHA, you may qualify for a streamline refinance to take advantage of today's lower rates.  "Streamline" means that there is less documentation involved for the borrower which allows the transaction to close quicker than a typical refinance.  With a FHA streamline refi there is:

  • no income documentation or verification. UPDATE 8/23/2009:  Many lenders are now requiring proof of income/employment to show ability to make the mortgage payment.
  • no minimum credit score requirements. 620 minimum credit score required by most lenders. UPDATE 8/23/2009: Many lenders are now requiring a 660 minimum credit score. 
  • no verification or documentation of assets (like bank statements, retirement accounts, etc).
  • an appraisal may not be required.   When an appraisal is used for an FHA Streamline, the loan to value is limited to 97.75% (this is also true for refinancing a non-FHA loan to a FHA insured loan).  When an appraisal is not used, there is no "loan to value" ratio and closing costs may not be financed. (Updated).
  • upfront mortgage insurance is reduced to 1.5% of the base loan amount (instead of 1.75% for a non-streamline FHA refi) ). 2.25% (and proposed to be changed soon). 
  • cash back to the borrower is limited to $500. 

The following are some of the requirements for a home owner to qualify for a FHA refinance:

  • the existing mortgage that is being paid off must be an FHA insured mortgage.
  • the borrower may not have been late (30 days or more) on their mortgage payment in the past 12 months.
  • the new loan amount is subject to FHA loan limits.  Note: if you have an FHA mortgage that was acquired in 2008 where your geographical loan limit was higher than the current 2009 limit, you may still qualify for the streamline refi as long as your new loan amount does not exceed the original loan amount and the loan to value is 97.75% or less.

If a property has been converted to an investment property with a FHA insured underlying mortgage, it may also qualify for a FHA Streamline refi with no appraisal and only for the outstanding principal balance.

Last but no least, make sure that your Mortgage Originator works for a company who is HUD approved.  Some loan originators are not and may try to illegally broker your loan to a company that is.  I have been helping Washington State families with FHA financing since 2000 and Mortgage Master is a Direct Endorsed HUD approved lender with our own "in-house" FHA underwriters.  They've been helping home owners in the Pacific Northwest since 1976!

If you're interested in obtaining a FHA Streamline refinance for your home located in the State of Washington, please email me with the following information: 

  • Property address (estimated property taxes and home owners insurance is a plus).
  • Original FHA mortgage balance from when the mortgage was obtained.
  • Original amount of UFMIP (upfront mortgage insurance premium) and when you obtained the FHA insured loan.
  • Current FHA mortgage balance.
  • Estimated home value (appraisal may not be required).
Filed Under: FHA, Refinance Tagged With:
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