Refinancing Help (GFE Details Enclosed) (insurance, loan, fixed rate, interest)

[home n00b]

Greetings,

My wife and I have owned our home since January of last year (01/2008). Over the past month or so, as interest rates have been dropping, we've decided to go back to our original broker (who helped us close on the house last year) to see what it would cost to refinance. This is our first home, so we don't have a whole lot of experience in the refinancing department of homeownership. So, I'm hoping that there are people that have more experience than us (probably most people), who could provide some guidance as to whether the GFE we received yesterday is a good one, or if we should shop around, or if we should just stick with what we have... We plan on staying in this house for at least 5 years unless something forces us out (job relocation, job loss, winning the lottery, etc).

Our broker's plan is to have us wrap the closing costs into our mortgage with the exception of the appraisal ($375) that we had performed and paid for last week.




Current Mortgage info:

• We currently have a 30-year fixed rate mortgage at 5.875%.
• We owe ~$153,539 on our loan.
• Appraised house value is $165,000.
• Current monthly payments (including escrow) are $1,360.

Refinancing Info based on GFE received yesterday:

• This will be an FHA loan.
• 800 Lines: Items Payable in Connection with Loan
  • 810 (Processing Fee): $450
  • 811 (Underwriting Fee): $695
  • 815 (Administration Fee): $200
  • 824 (Yield Spread Premium): 2.000% = $3,194.94
• 1100 Lines: Title Charges
  • 1101 (Settlement or Closing Fee): $200
  • 1108 (Title Insurance Fee): $475
• Total Estimated Closing Costs (from lines 800 thru 1309): $2,085.00
• Estimated Reserve/Prepaid Costs (from lines 900 - 1010): $1,232.19
• FHA UFMIP/VA Funding Fee: $2,747.50
• Total Costs: $159,603.69
• Loan Amount: $157,000.00
• FHA UFMIP/VA Fee Financed: $2,747.00
• Total Credits: $159,747
• Our new monthly payment is estimated to be $1,204.98

Note: I left a few small charges out (recording fee, etc), so if the numbers do not add up completely, that may be why.




Questions:

1. Are the total costs incurred with refinancing calculated as follows: Total Estimated Closing Costs ($2,085) + Estimated Reserve/Prepaid Costs ($1,232.19) + FHA UFMIP/VA Funding Fee ($2,747.50) + Appraisal ($375)? This would total to $6,439.59. Since we would then be saving ~$155/mo. on our monthly payments, our payback period would be ~42 months?
2. Do the estimated costs in the GFE seem reasonable? Should we shop around?
3. Should the YSP of 2.000% ($3,194.94) be of concern to me (I don't know a whole lot about YSP)?
4. Is there a correlation between the 5% interest rate and the 2% YSP? If so, is this a good interest rate based on the YSP, or should I expect a better rate?
5. Can I use the FHA appraisal that I purchased last week with other brokers/lenders, or would I have to get a new one if I shop around?

Bonus Questions:

1. Does it make sense to wrap all of the costs (minus appraisal) into our mortgage? We could probably afford to pay half ($3,000ish) of the closing costs up front.
2. Is an FHA loan our only option? Why did we not require one when we initially closed on the house? (I'm not a big fan of the $2,747 FHA UFMIP/VA Funding Fee)

Sorry for the amount of questions, my wife and I just want to make sure that refinancing would be worthwhile for us. Thanks in advance for any help that can be provided!

[jctx]

From another 'layperson' with no experience (and I know you are seeking the opinions of experts), my guess would be that there are fees on there I would question. So if nothing else, you know you arent alone in your questioning!

We are in the middle of purchasing a home, and I dont remember seeing the YSP - is that the same as the loan origination fee? Nor the other administrative, processing or underwriting fees. They are making money off of you for years, why niggle you with these little fees? But again, this may be the norm and my inexperience just leaves me clueless.

[jctx]

Love your 'name' haha.

[Gessa]

Have you heard about streamling FHA and not refinancing?

[Daddys///M3]

I think the OP is going from a conventional to an FHA. It sounds like the OP used a loan program that does not exist anymore to buy the home, or the home lost value and now the loan to value is higher than it originally was.

These days, depending on your area, FHA may be your only high loan to value option. Even if it wasn't, it may still be the cheaper option due to less expensive monthly mortgage insurance. The rate has a direct relationship with YSP (YSP is how the lender compensates us by selling a higher rate), although 5% was not paying back any YSP as of last week. A very aggressive lender might have been pricing 5% out at par (no YSP but no discount points either) but I can't see any lender paying 2% back at 5% last week. You should probably expect more like 5.5% which was paying back 1%, particularly since your broker is not charging you an origination fee.

I would probably pay as many of the closing costs as I could upfront, simply because your break even period is significantly affected negatively when you finance the closing costs due to interest paid. As far as the appraisal goes, an appraiser cannot reassign or transfer an appraisal. It must be treated as a new assignment. However, many appraisers would be willing to redo the assignment for a discount on a property that they have already appraised. Not only that but once a loan is registered a case number for the property is issued. Should you decide to shop around the case number will have to be transfered to the new broker/lender and sometimes those of us that are less than professional will make it very difficult to get that case number transfered (although if it is requested it is required).

[Daddys///M3]

Originally Posted by jctx

From another 'layperson' with no experience (and I know you are seeking the opinions of experts), my guess would be that there are fees on there I would question. So if nothing else, you know you arent alone in your questioning!

We are in the middle of purchasing a home, and I dont remember seeing the YSP - is that the same as the loan origination fee? Nor the other administrative, processing or underwriting fees. They are making money off of you for years, why niggle you with these little fees? But again, this may be the norm and my inexperience just leaves me clueless.

Direct lenders (and this includes correspondent and pass through lenders) are not required to show YSP/SRP (servicing release premium, they are actually 2 different things but the premium pricing aspect is the same).

[home n00b]

Originally Posted by Daddys///M3

I think the OP is going from a conventional to an FHA. It sounds like the OP used a loan program that does not exist anymore to buy the home, or the home lost value and now the loan to value is higher than it originally was.

You are correct in that we are going from a conventional loan to an FHA. However, the thing that confuses me is that our home value actually went up $1,000 according to the new appraisal (last year it was appraised at $164,000), so I am not clear as to why we're being directed towards an FHA loan. This will be something that I'll have to talk to the broker about.

Originally Posted by Daddys///M3

The rate has a direct relationship with YSP (YSP is how the lender compensates us by selling a higher rate), although 5% was not paying back any YSP as of last week. A very aggressive lender might have been pricing 5% out at par (no YSP but no discount points either) but I can't see any lender paying 2% back at 5% last week. You should probably expect more like 5.5% which was paying back 1%, particularly since your broker is not charging you an origination fee.

As far as the YSP goes, is it even something that I should concern myself with? As I understand (or misunderstand) it, YSP is the amount in which the lender will pay the broker for the loan. In my case, if it were a 1% YSP instead of 2%, since the lender would be paying less back to the broker, would it make sense that I would receive a lower interest rate than 5%?

Thanks for the responses everyone!

[Daddys///M3]

Originally Posted by home n00b

You are correct in that we are going from a conventional loan to an FHA. However, the thing that confuses me is that our home value actually went up $1,000 according to the new appraisal (last year it was appraised at $164,000), so I am not clear as to why we're being directed towards an FHA loan. This will be something that I'll have to talk to the broker about.

My guess would be (best guess since I don't know the exact loan program that you bought the home with) that either a) the loan that you bought the home with has disappeared, b) the guidelines have tightened up so much with the loan program you bought the home with it may as well have gone away, or c) the pricing is so much higher than FHA it would be impossible to refinance you into the same loan program without your rate actually increasing (that wouldn't make much sense at all obviously).

Originally Posted by home n00b

As far as the YSP goes, is it even something that I should concern myself with? As I understand (or misunderstand) it, YSP is the amount in which the lender will pay the broker for the loan. In my case, if it were a 1% YSP instead of 2%, since the lender would be paying less back to the broker, would it make sense that I would receive a lower interest rate than 5%?

Thanks for the responses everyone!

I wouldn't concern myself too much with YSP. First of all, because the mortgage bond stack is so compressed that if the broker wanted to gouge you via YSP the rate would be so high that the broker would not be competitive even with your current rate. If FHA was paying back 2% YSP at a 5% note rate (which it has not anytime recently) then it would stand to reason that a lower rate would pay back less, and maybe the broker could get you 4.5% with 1% YSP. HOWEVER, I don't see ANYONE paying back that kind of YSP right now. As I mentioned earlier, you would be lucky to receive 5% at par right now (no YSP and no discount points). 5.5% was paying back between 1% and 1.5% YSP as of Friday and pricing was worse on Friday and is expected to get even worse (at least until March 4th). I get the feeling that your broker is over disclosing (which is a measure we sometimes use to cover our butts with regards to compliance) so please don't expect to give him a call and say "give me 4.5% and you can still earn 1% YSP" because it is just not out there.

[Fat Freddy]

We had our house built about a year and a half ago. We already owned the land.
We put no money out of our pocket and got a construction loan for about $160K at 6.75%
We moved in July of 2008.
Our monthly mortgage payment including taxes and insurance was about $1200.
We recently decided it would be nice to build a room off the bedroom for a hot tub.
Property values here have plummeted. Our house used to worth $230K and since we moved in we added about $16K worth of improvements, but it was just appraised at $210K.
But we were able to refinance with cash out at 4.5% and got $13K that will help with the remodel.
We put no money out of our pocket and the new mortgage payment including taxes and insurance will be about $960.

The bottom line is that we got $13K free money and saved about $200 a month in our house payment. Long term considerations don't matter to us as we are old, retired, and for us there is no long term.

But for right now I think we got a great deal.

[suzie02]

I am not familiar with FHA at all but so can not help you with that part. We have have had so many mortgages that is not even funny so I would say to you do not use a broker go directly to lenders. The broker's fee comes from your pocket.
Is the FHA UFMIP/VA Funding Fee like an origination fee? If it is I would shop around.

A pay back of ~42 doesn't seem worth it to me.

We are about to refi and we are looking at payback of 4 months. In the past we have refi for payback of 6 months.