Refinance Question (updated 7/21 in comments with options)

[Deleted]

I'm sorry, I know that there a ton of these posts right now but didn't see my questions.

I don't know if this is state specific, but I'm in PA. We are looking to refinance. We applied with our current lender, and while approved pending the appraisal, I'm not thrilled with the terms. Our current mortgage is xxx

Our current lending approved us at 3.375% but we have to pay like $6K to get that rate, points I think they said? Our credit scores are around xxx

Anyway, here are my questions. If we pay for and get the appraisal through our current lender, would we have to get a separate appraisal for each lender or can we just use the one?

Also, is it worth applying with multiple lenders while we're still in our 14 day window in regards to our credit pull?

[puppylove64]

My mortgage broker told me that 740 credit score is excellent for them and everything over 740 gets the best rates, no matter how much more than 740.

[madisen]

What kind of loan are you refi'ing into, Conv or another FHA?

That can make a difference on if you can use the same appraisal with another lender or not.

I would absolutely get another quote.

[njohnson1972]

I didn't find any difference in rates from a 30yr to a 20yr. With 0 pts, I am finding 2.875% to 3.000%. 740 is the credit score needed to get the best rates. $6,000 is a lot of points to buy down to 3.375%.

1 point typically gives 0.25% reduction in rate and costs 1% of the mortgage. If you are taking cash out, your new mortgage will be larger therefore the points will cost more.

For example, if your new mortgage is for $300,000, 2 points would $6,000 and a 0.50% reduction in the rate.

When I shop for rates, I make them give me rates with 0 points so that I can compare apples to apples.

[njohnson1972]

With your refinance, will you still have to buy mortgage insurance?

[wildrice]

How close to getting rid of PMI are you? I'd hesitate to take out money and keep paying PMI a lot longer because of it. $170 per month is a lot of money for basically nothing. That's almost 2k per year.

732 isn't bad but credit scores go up to 850 so it's not stellar either. You are in a spot where you are going to get approved for stuff but not for the best/most competitive rates.

I have never refinanced a house, so ignore me if you think that disqualifies me, but I'd be hesitant to pay 6k in points, plus whatever other closing costs are involved, unless it's saving you a ton of money over the life of the loan and you are pretty sure you won't ever need or want to move. It will take you several years, maybe more than several, to see savings if you've paid 10k+ to refinance. I'd at least run the math to find out where your break even point is, and then decide if it's worth it.

[k3am]

When we shopped, there was no rate difference between 20 and 30 year terms.

It's hard to say if $6k is a lot or not without knowing what your loan size is. What are you paying in points (vs what the $$ equivalent is)?

And to wildrice's point above.. make sure it makes sense. We paid points and heavy closing fee, but we knew exactly how much money it would save us over the life our loan. 

I'd definitely shop around. Our lender was able to tell us exactly what we would qualify for without a credit pull. With the caveat that if our credit wasn't as pristine as we said it was, we wouldn't qualify.

[wildrice]

One other thing, if you're shopping around I would see what PMI changes to with a conventional loan. I didn't know this before, but PMI with an FHA loan was significantly more expensive for us than it was with a conventional loan. So it's possible if you refinance that you'll have lower PMI anyway. I think ours is around $50 per month (but we do have higher credit scores, which I think was a factor too).

[Deleted]

To answer some questions, we'll be going from an FHA to Conventional, our main goal is to get rid of the PMI but cash out would be a huge bonus. The way our mortgage is structured we can only get rid of PMI by refinancing. PDQ Numbers, but our original mortgage was $xxx cash. We had hoped to get $25K, but because of having to buy the points it obviously reduced the amount of cash we could take out. This is all based on a guesstimate of value of xxx, but it could go up or down by $20K, no way to know until we get the appraisal. If it goes down, then that will of course affect our cash out because we are so close to 80% LTV. By my math, this refinance will save us $50K in interest over the life of the loan between shaving off 5 years and the lower interest rate. Closing costs + points is just shy of $10K so we'd still net an overall savings close to $40K plus get the $19K in our pocket. 

Another question about the appraisal, should we get one on our own or use whoever our mortgage company sends us to?

[madisen]

Appraisals for Conventional loans are traditionally ok to transfer from one lender to another. However, because appraisals can be a sensitive area for lenders and can be prone to potential fraud, some lenders have overlays about not allowing a transferred appraisal anyway.

I don't see the benefit of getting your own appraisal. A lender doesn't actually appraise, there are rules about appraisals being arms' length from the lender itself. Traditionally, the way it works at most places is a lender has vendors called AMCs that have a national network of vetted, licensed, contracted appraisers. And the AMC farms the appraisal job out after a borrower pays for that appraisal to the AMC. There are definitely exceptions, but that's how many if not most lenders do it for residential mortgages. Lenders like to use their own AMCs because they have vetted and done their own risk due diligence on that AMC's practices. The lender can be on the hook to repurchase the loan if there's a problem with the appraisal.

I'd try another quote at least to make sure the rate and costs are in the ballpark for your area and scenario.

[tealblue]

The appraisal should be later after you do a bunch of paperwork- so get quotes on rates and fees and then decide who to go with. Then do all your paperwork. They will order the appraisal, we didn’t have a say in who came for our recent refinance.

If you have done any work/upgrades on your house since you bought- I would make a list and explain what was done, when and how much it cost for the appraiser. Our most recent appraiser was really good, we were just chatting about other houses that sold or were listed nearby and I knew how much they had sold for and approx relative value compared to our house (I.e they had a similar amount of sq ft or weren’t updated at all or on a similar size piece of land). We also have done a huge amount of renovations since we bought, so I didn’t want him to see we paid $x 9 years ago and go off the value of that. I pointed out all the work we did and how I came up with the value I expressed on the application. He appraised us $5k less than that, which was fine for our needs. But he was by far the best appraiser we have had.

[njohnson1972]

With that mortgage amount, $6,000 in point costs is really high. I wonder if he meant $6,000 in closing costs including points?

I would definitely shop around. LenderFi isn't taking any refinancing again because they can't keep up with the current demand.

I put your numbers in Bankrate.com and Homefinity offering 3.125% for 20YR and 3.250% for 30YR with no points. The other bank, Blue Spot, was only offering 4.25% and 4.375%, respectively. With a 740+ credit score, Homefinity is 2.990% for 20YR and 3.125% for 30YR. I used a random PA zipcode, so you may actually find different rates/banks using your actual zipcode.

I personally don't like paying mortgage insurance. I would work the cash out/mortgage amount to make sure I had 20% equity.

[sadlebred]

Does the $6000 include any prefunding of the escrow account?

Can you try to improve your credit score to above 740 by paying off some existing debt and then refinancing? You'll get a better rate above 740.

[Deleted]

Jul 15, 2020 21:29:56 GMT -5 sadlebred said:

Does the $6000 include any prefunding of the escrow account?

Can you try to improve your credit score to above 740 by paying off some existing debt and then refinancing? You'll get a better rate above 740.

The $6k is just for buying points. There are closing costs and the funding of escrow on top of that, however, we have a chunk in our current escrow which technically will be rolled in to the new one so that's kind of a wash. 

We're in debt pay down mode right now, but unfortunately, aren't near being able to pay the next thing off for a least another 6 months, so that's not really an option. Plus, our credit has already been pulled, and I'm not really interested in delaying the refinance and risking the rates going up even more. 

[Deleted]

PDQ I don't know what to do, I'm so torn. Here are my two options right now. We are currently in an FHA and both of the below options are conventional. If we were to do nothing, we have 25y left in our 30y FHA, we'd pay PMI for the life of the loan and $201K in interest (to date, we've paid approx $55k in interest)

Current Lender: xxx

New Lender: xxx

We can afford the higher payment. We'll be paying off 2 credit cards with the cash out and the monthly payments equal just over $400/mth, so it would almost be a wash. But, that also means that the $400/mth we'd be saving with the 20y wouldn't be available to apply to the debt we have left (xxx), though we would still have $600/mth extra that we were throwing at the credit cards getting paid off. Our only other debt would then be the mortgage and 2 car payments.

If you were me, WWYD? I know which way I'm leaning, my by H is leaning the other direction, so I"m putting this out here to see what you all think.

[woowoo]

What are the interest rates on the other debt? How long would it take to pay those off if you went with the higher monthly payment.

[Deleted]

Jul 17, 2020 14:16:48 GMT -5 woowoo said:

What are the interest rates on the other debt? How long would it take to pay those off if you went with the higher monthly payment.

PDQ xxx. Mine will be paid off in April 2022 and his not until December 2026. We do actually plan on paying his down aggressively once our higher interest stuff is paid off and we should be 100% debt free other than our house by Oct-2023.

So, with the $400 extra going towards the remaining debt (not cars and house) those three items would be paid off by Feb-2022, if the $400 went to the mortgage instead, those items would be paid off in Jun-2022. *

Note: In the first scenario, there would be an extra $1000 payment from my bonus in March-2021, and in the second scenario there would be the March-2021 plus a second $1000 in March-2022. 

[Deleted]

Jul 17, 2020 17:52:53 GMT -5 mofongo said:

How much do you pay upfront for option 2?

Both options have us bringing $0 to the table.

Option #1: $xxx

Option #2: $xxx 

Obviously, this is all contingent on our appraisal.

[aspentosh]

Just throwing it out there, but I wouldn't be surprised if you could find a better rate. We just locked at 2.875% for a 20yr.

We opted for 20yr instead of 15yr because while we can make the payments we didn't want to be locked into that number. We overpay our mortgage right now by about 30% and will continue to overpay once we refinance, but if a hardship ever comes (single income family here) we *could* reduce how much we pay. But if we overpay we reduce our effective interest rate, so it'll even out a little at least.

[wildrice]

I think you should do the 20 year loan. On paper that extra $400 a month may not sound like a big deal, but I think it might end up feeling tight, especially since you do have other debt you are trying to pay off. From your previous posts, I also get the impression you guys (especially your H) are spenders and my concern would be that if your budget is too tight, you're going to end up accruing more debt over time because you aren't going to have the ability to save up for things you want as easily.

The 15 year loan is a better financial choice but I think you have to consider lifestyle in these decisions. Do you want to have to live frugally for the next 15 years to make your mortgage? Do you want to always be stressing about being on the brink of going into debt because you can't easily afford the other things you want?

FWIW I would probably pick the 20 year loan for those reasons. I like to be able to do stuff and don't want to limit that more than I have to.

[njohnson1972]

Honestly, I would get the best rate you can for as long as possible. Rates right now are at historically low levels. I know for most the dream is to be debt free, but there may not be another time to get debt this cheap. You can always pay down your loan faster, after you pay off other high debts. But lock in the lowest rate for the longest time on your largest debt is my recommendation.

Your current lender is giving you a terrible deal. It is basically 3.97% for 30 years - 0 points.

Ask your Option #2 lender what rate you could get for 30 years with 0 points. Also, why is the prefunding escrow amount higher?

[Deleted]

Jul 20, 2020 15:24:10 GMT -5 mofongo said:

@sameoldstory - have you made a decision?

No! I've asked both my current lender and the other company to run the numbers for a 30 year, because my nervous nelly self likes the idea of getting a 30 year if we can get an amazing rate, pay it like it's the 15 year, but then have the flexibility if good forbid we ever need those extra funds. I'm a majorly anxious person and of course, I'm the money person in our relationship so my H would do whatever I tell him is best.

[Deleted]

PDQ Okay, I'm putting all of the numbers out there. Keep in mind that with any of the CCM options, we'll also be getting a check from our current lender for our escrow balance, for the PM numbers, that balance is being subtracted from the payoff. Number for both are estimates since both my homeowners and school tax bills are due next month. I'm strongly leaning towards the 20Y CCM option due to the increased cash in pocket amount with a close second for the 30Y CCM option for the increased flexibilty, I would make payments as if it's the 20Y.

xxx

[njohnson1972]

Between the 20YR and 30YR CCM options, I would do the 30YR hands down. Unless you aren't discipline enough to pay extra and need the structure of the 20YR. It will allow you the most flexibility should you need it. As you pay down other debts, just apply the extra savings to paying down your loan.

[SusanBAnthony]

I'd do the 30 year.

[sadlebred]

I'm looking at your closing costs. Do you already have Title Insurance? If so, that is something you can have them take off. The title insurance should follow you as you own the policy. Did they actually do an appraisal? If not, they shouldn't be charging you an appraisal fee.

[njohnson1972]

Jul 21, 2020 19:45:50 GMT -5 sadlebred said:

I'm looking at your closing costs. Do you already have Title Insurance? If so, that is something you can have them take off. The title insurance should follow you as you own the policy. Did they actually do an appraisal? If not, they shouldn't be charging you an appraisal fee.

For my refinance, I have to buy a new Title insurance policy for the lender.  My personal Title insurance policy does stay in place and does not need to purchased again.

[wildrice]

What does CCM and PM mean?

I would do the 30 year CCM. It almost seems like a no-brainer for me. There is basically no difference between the 20 and 30 year loan other than a higher payment/paying it off faster. You can always pay it off faster on your own if you find that's truly the best use of that extra money. I am not seeing any compelling reason to pay 5-6k for points - it makes little difference in interest rate unless you go for the 15 year loan, and the nearly $700 a month higher payment turns me off that one.

FWIW we got a 3.5% interest rate on our mortgage that we closed on on May 1st, and I was thrilled. I know lower rates exist now (and maybe we would have gotten one had we locked in later or closed later), but it's still a really, really good rate. I wouldn't box myself into a long term tight budget just to get a better rate when your rate is already so low.

[Deleted]

Jul 22, 2020 10:21:11 GMT -5 wildrice said:

What does CCM and PM mean?

It's just the two different companies that I got loan estimates from. 

[mommin]

I favor the 30 yr CCM amd pay extra each month to pay off in 15 years, if possible. A year ago I would have said to do the 15 yr but in light of all the uncertainty right now (and our own unemployment) I am now much more in the safe category of doing the 30 yr. with extra payments. I was certain we were in a VERY secure job (healthcare admin in a position that had never had layoffs in the company's 100 year history) but my husband has been laid off with very few prospects due to coronavirus and I really wish we had a 30 year right now rather than our 15 yr.