2010-09-25-We are among many people who got stuck with a higher interest mortgage and can’t do anything about it because we don’t fit the “requirements” for loan modification or normal refinance programs. The banks are totally stupid, greedy and the people in the loan departments should all be without a job, instead of modifying good customers loan to a lower interest rate, they just let the good customers go somewhere else. We bought our house in 2007, when the market started to go south. We put down 10% with a first of 80% and the piggy loan of 10% so we didn’t have to pay for PMI (private mortgage insurance). We’re been paying well for 3 years and now everyone is getting 4.5% for conventional JUMBO loans, so we want to get one to consolidate our first @ 6.375% and the second @8%.
The house prices went down, so did our down payment and then some. So we contacted the bank (hint CW/BOA). We don’t fit the criteria of loan modifications because we’re not in financial troubles, paying on time and have good credit. Most of my loan brokers just flatly said “NO CAN DO” with our situation, a few recommended us to be bad, be late, pretend to be in trouble, stop payments for a few months, have bad credit to fit the requirements of loan modification. What about the new loan programs that help people who’s not in default, well, that one will help to reduce the mortgage to 1/3 of the income and there must be some changes in the source of incomes (like one person got laid off). Well, we were responsible people, our mortgage is 1/3 of our total gross income, we’re lucky we both still have jobs, we kept our credit clean and we have no debts, so why would anyone give us a new loan to consolidate the other 2 higher interest loans? We didn’t qualify… We don’t have another 20% down to go with conventional, the house appraisal value is just a tad above the total loans combined (thanks to the “good” zip code).
SO WE’RE STUCK until some old class mate who I hadn’t seen for many years told me that a program may help my situation. FHA to the rescue. We always thought FHA is only for government people, low income people, low price house loans (conforming), first time buyer or anything that wouldn’t include our situation.
FHA LOAN THAT COST ARMS AND LEGS BUT STILL BETTER THAN OLD ONES.
1. Cost up front 2.25% (some PMI fee) which can be put on top of the loan to finance.
2. Monthly PMI .55% of the loan per year add to the payment.
3. Can finance up to 97% of the appraised value.
4. Credit score above some low score like 660 or something like that which we’re easily qualified.
5. Impound account to pay for property tax & insurance must be in place (so we have to pay property tax monthly to the lender).
6. Assumable. Many years from now, if the interest rate goes up, we could sell our home with a low rate for people who are qualified.+++
THE BOTTOM LINE
We got our loan @ 4.5% but our APR is 5.1% due to all these fees, loan costs.
1. We had to cough up $13k due to low appraised value.
2. We save $680/month.
3. We only had 26 years and 10 months (322 months) left compares to the new 30 years (360 months) loan.
We calculated the benefits before we went ahead with this loan because of the hefty cost doing this loan and the 3 years we paid into the house. We plan to keep this house 15 years for the kids to finish high school, we don’t need this big house and good schools system when they’re all in colleges. So what happens after 15 years with the new loan compared to the old 322 months loan @6.375% & 8%?
After 15 years, we will owe $34k more with the new loan than the old loan. But if we put $680 in the bank every month, then with no interest we still have $122k in 15 years. Well, the numbers are there, the question is “can we put these $680 saving in a saving?”
Anywho, if the appraised value is the same or a little higher than the mortgage, don’t listen to brokers to ruin your credit to have loan modification. FHA is a great solution, but still, do your homework and find out the pluses and minuses because it does cost a lot of money to do the loan. FHA loan does change frequenly, the next change is October, 2010 which lowers the up front fees to 1%, but raise the monthly PMI fees to .9% instead of .55%. To us, we think the 2.25% @ .55% is better than the 1%@.9% monthly.
WATCH OUT FOR ESCROW and COST OVER CHARGES
***We were charged full tittle insurance ~ .002% which we already bought 3 years ago. May be we can’t use the old one.
***Don’t close on Friday because you will have to pay interests on both old and new loans for the whole weekend.
***When your broker tell you the cost of appraisal will be about $350-500, make sure it’s a $350, because if you don’t, in our case, it’s $500.00.
***Always ask for the real APR because the difference between APR and actual interest rate is your cost of doing the loan, in our case, we did pay too much from 4.5% to APR of 5.2%.
***Must ask for a fixed closing date, because they can take their sweet time and drag the loan out for a long time. You want to get the lower interest rate ASAP.
***FHA really costs a lot of money. We have never seen any of our loans ever went from 4.5% to 5.2% APR, ever. Anyhow, we’re happy that we got the loan regardless of getting a bigger Ahole.
Cheers and good luck,
Update on Tax Savings On 2.25% PMI and .5% PMI (monthly)- Zero, yes, Zero if your household adjusted total income is more than $109k. What about the point that we paid for our refinanced loan, the .5% divided by 30 years = amount deducted every year. So, unless it’s totally calculated and made good sense, don’t even think about FHA. Even if you make below 109k, make sure you talk to tax advisor, because you can’t even deduct the whole amount. The FHA law just changed, monthly PMI is higher now, although the upfront PMI is lowered, I rather go with the front than the monthly, because if you can’t deduct the montly PMI, it will be the money out of the windows like HOA or something like that. 4/15/2011