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Longer term ARMs have to be approved by the credit union's president, on a case by case basis. We locked in the rate when we did because we were concerned that it would fluctuate upward. Our lender said we could submit our paperwork to the prez and request a a 10/1 ARM (which I would be fairly comfortable with). Unfortunately, he told us today that they don't do 10/1s at all anymore, but offered a 7/1 instead.
I don't know how to answer the "how long will you be in the house" question, honestly. As first-time homebuyers, we're over the moon with the house now. I'd like to think we'll be just as enamored in 5 years, but I don't know if that will be the case.
What's involved in refinancing? Do you just wait until (in theory, best case scenario), the 30-year fixed rate drops to say, 5.5%, then have to apply and pay closing costs? Do you have to go through the appraisal and all that again?
Relatedly, can someone please explain to me what's involved with PMI and how it goes away? I don't quite have a grasp on what that ratio is (i.e., We put down 10% on the purchase price. I know we get rid of the PMI at 20%, but 20% of what?)
Lenders typically use a lock to help take uncertainty out for buyers and themselves. Some also offer a "float down" option so that if rates FALL (as it appears in your case) the borrower gets a better deal. Sometimes there is a fee associated with this. ASK NOW!
Ok, next onto PMI. With most any lender once loan-to-purchase ratio is better than 78 percent is better than you can generally get PMI is dropped. The FannieMae/ FreddieMac standards (but not FHA) allowed for this ratio to also be determined by rise in market value. Your appraisal suggests you are already theer even at 100% financing, so you need to tell us how much you are putting down BUT the FHA type standard also required a clean payment history which means ONE year of payments that are never 30 days late or two years that are never 60 days late... Make sense?
On a refi, yes, basically every lender will want an appraisal. Yes, there MAY be some other closing costs. It should, however, be easier, faster and pretty uneventful compared to a new loan. In fact many lenders have programs for their ARM customers to convert to fixed with basically nothing other than a few checks as long as everything was current and values from the appraisal were OK. That may not be the case now, but worth asking about.
Yes, you need a new appraisal when you refinance. Usually when you refinance, I think you can only refinance for 80% of the appraised value of the home. So if the home appraises at $300,000, you can only refinance an amount of $240,000 and I also think any closing costs rolled into that would have to be part of the $240,000, not in addition to (not totally sure). Unless you pay for the closing costs from other funds.
So, in this example, you would have to have a mortgage balance of $240,000 or less at that time. If you have more, you cannot refinance. If the house goes down in value, the amount you are allowed to refinance will go down also.
With values going down it is not as easy to refinance as it used to be. That's how seedy mortgage brokers were selling their interest only loans. They told buyers, take this good loan now and then you can either sell and make a bundle in 5 years or just refinance.
I would say only take the arm if you plan on moving within the 7 years. Don't count on refinancing...and also take into account, you may not be able to sell it for what you paid for it.
If your credit union is suggesting to you that you can refinance in 5 years, have them run you some quick scenarios of how it would work so you can see the numbers on paper.
You should not have to pay PMI either way as you LVR wil be more than 20%. If you are correct and the appraisal is about 333,000. (The rate on my ARM is currently 4.34%) Why would I want to re-fi? I've had this loan for approx. 12 years.
You should not have to pay PMI either way. If your home appraised at $333,000 then your LVR is less than 80/20. I've had an ARM for about 12 years, the current rate is 4.34% Why would I re-fi? Fixed rate is for yellowbellies.
According to my lender, PMi is required on the fixed rate because it's a loan sold to Fannie/Freddie, so they have to abide by their guidelines. The ARM is an internal transaction, so they said they wouldn't charge us PMI since it assessed so highly.
On our $247,900 offer, we're putting down $25k, right around 10%. Our lender said today that PMI is based on the ratio of what you owe to the amount you *purchased* the house at. Since the first several years of a mortgage are paying more interest than principal, it would take us FOREVER to pay off another $25k (according to the amoritization schedule, "forever" will be approximately 2016, which seems really far away!). I thought PMI was based on your equity. And I thought equity was how much you owe on the house (i.e., $222,900) versus how much the house is worth (i.e., the county assessed it at $274k and the bank assessed it at $333k).
I'm so confused! I thought I had a good grasp on this until I actually tried working it out with our actual numbers.
P.S. I'm leaning toward the fixed rate, primarily because (a) we may very well end up in the house for ten years and (b) the interest rate seems unlikely to get well below 6%...
Thanks, you guys, for your help. It's nice to get feedback from people who (most likely ) know what they're doing!
According to my lender, PMi is required on the fixed rate because it's a loan sold to Fannie/Freddie, so they have to abide by their guidelines. The ARM is an internal transaction, so they said they wouldn't charge us PMI since it assessed so highly.
On our $247,900 offer, we're putting down $25k, right around 10%. Our lender said today that PMI is based on the ratio of what you owe to the amount you *purchased* the house at. Since the first several years of a mortgage are paying more interest than principal, it would take us FOREVER to pay off another $25k (according to the amoritization schedule, "forever" will be approximately 2016, which seems really far away!). I thought PMI was based on your equity. And I thought equity was how much you owe on the house (i.e., $222,900) versus how much the house is worth (i.e., the county assessed it at $274k and the bank assessed it at $333k).
I'm so confused! I thought I had a good grasp on this until I actually tried working it out with our actual numbers.
P.S. I'm leaning toward the fixed rate, primarily because (a) we may very well end up in the house for ten years and (b) the interest rate seems unlikely to get well below 6%...
Thanks, you guys, for your help. It's nice to get feedback from people who (most likely ) know what they're doing!
Equity is the difference between what the house is worth and what you owe. So if your house is assessed at $333K and you owe $222,900, you have $110K in equity at this time. But what your lending is saying you own only 75% of the house...they are not using the appraisal amount for PMI, they are using the sales price.
Location: central, between Pepe's Tacos and Roberto's
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Quote:
Originally Posted by tamitrail
Yes, you need a new appraisal when you refinance. Usually when you refinance, I think you can only refinance for 80% of the appraised value of the home. So if the home appraises at $300,000, you can only refinance an amount of $240,000 and I also think any closing costs rolled into that would have to be part of the $240,000, not in addition to (not totally sure). Unless you pay for the closing costs from other funds.
So, in this example, you would have to have a mortgage balance of $240,000 or less at that time. If you have more, you cannot refinance. If the house goes down in value, the amount you are allowed to refinance will go down also.
With values going down it is not as easy to refinance as it used to be. That's how seedy mortgage brokers were selling their interest only loans. They told buyers, take this good loan now and then you can either sell and make a bundle in 5 years or just refinance.
I would say only take the arm if you plan on moving within the 7 years. Don't count on refinancing...and also take into account, you may not be able to sell it for what you paid for it.
If your credit union is suggesting to you that you can refinance in 5 years, have them run you some quick scenarios of how it would work so you can see the numbers on paper.
Actually you can rate and term refi at the same or similar loan to value ratios that are allowable on a primary residence purchase. The appraised value at the time of the refinance will determine the value, but the borrower will require at least 12 months seasoning in the home to use the appraised value.
Quick question that's a little off topic, why is it when a mortgage broker tells a client that they can refi 5 years down the road they are seedy, but when a credit union does the same thing they are on the up and up? Noone in their right mind can run a scenario 5 years down the line, not a broker and not a credit union loan officer. Anyone that lays claim to that kind of foresight is either extremely optimistic or absolutely full of it. FWIW, there were plenty of bank LO's that were pulling the same thing.
That being said I do agree with some of your points, I just feel that you should stick to facts and make sure that those facts are accurate.
Quote:
Originally Posted by Sergio M
You should not have to pay PMI either way as you LVR wil be more than 20%. If you are correct and the appraisal is about 333,000. (The rate on my ARM is currently 4.34%) Why would I want to re-fi? I've had this loan for approx. 12 years.
You're a real estate agent and you don't realize that the bank does not base their LTV off of the appraised value on a purchase but the purchase price instead?
Location: central, between Pepe's Tacos and Roberto's
2,086 posts, read 6,848,281 times
Reputation: 958
Quote:
Originally Posted by purplegirl247
According to my lender, PMi is required on the fixed rate because it's a loan sold to Fannie/Freddie, so they have to abide by their guidelines. The ARM is an internal transaction, so they said they wouldn't charge us PMI since it assessed so highly.
Ok, I got it. That would definitely be correct than.
Quote:
Originally Posted by purplegirl247
On our $247,900 offer, we're putting down $25k, right around 10%. Our lender said today that PMI is based on the ratio of what you owe to the amount you *purchased* the house at. Since the first several years of a mortgage are paying more interest than principal, it would take us FOREVER to pay off another $25k (according to the amoritization schedule, "forever" will be approximately 2016, which seems really far away!). I thought PMI was based on your equity. And I thought equity was how much you owe on the house (i.e., $222,900) versus how much the house is worth (i.e., the county assessed it at $274k and the bank assessed it at $333k).
I'm so confused! I thought I had a good grasp on this until I actually tried working it out with our actual numbers.
P.S. I'm leaning toward the fixed rate, primarily because (a) we may very well end up in the house for ten years and (b) the interest rate seems unlikely to get well below 6%...
Thanks, you guys, for your help. It's nice to get feedback from people who (most likely ) know what they're doing!
Unless the MI companies have changed the rules, you should be able to order another appraisal a couple of years or so down the line and if your equity at that time is over 20%, you should be able to request to have it dropped. FHA is the only loan program that I'm aware of that will never go off of current appraised value but insists on using the original purchase price.
Actually you can rate and term refi at the same or similar loan to value ratios that are allowable on a primary residence purchase.
We just looked into refinancing. It had to be 80% of the appraisal. We did not get an appraisal or do anything further. Just wanted to see what was out there.
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