Refinancing a house.....6 months after a refi?

HardDrive · 05-22-2015, 09:26 AM

I'll spare you a long backstory. My sister has a horrible mortgage, bought at the top of the market in 2008ish, was underwater for a long time.....terrible deal.

Their current loan to value is about 87% (based on a really crappy appraisal), but they were offered a refi, the catch being that they would need to pay PMI for the next 5 years. Unless of course they simply refi again when they can get a more favorable appraisal. They live in Highland Park in LA, and prices are marching up pretty fast.

If I'm understanding the situation correctly, their broker is telling them that they can refi again in 6 months, and with the exception of the appraisal, they won't pay his fees again.

My questions:

A) The 6 month limitation, that's only if they go to the same lender, and not all lenders have a 6 month limitation, yes? If they went to different lender, they could refinance right away, correct? (I'm assuming that there is no early payoff penalty on loan one).

B) Doesn't it make a crap load more sense to take the cash they have in the bank, and PAY DOWN THE LOAN SO THAT THE LTV IS 80% SO THEY CAN GET A NON PMI LOAN, JUST LIKE I HAVE BEEN TELLING THEM TO DO FOR 5 FLOKING YEARS, BUT THEY WON'T DO IT BECAUSE THEY HAVE THEIR HEADS UP THEIR ARSES.

Seriously, I don't even know what to say to them anymore. Its almost like they are in a pact to make the dumbest decision possible.

Rick Lee · Rick Lee's Garage

Figure out the cost of PMI over five yrs. and compare to cash needed to reduce loan balance by enough to not need PMI. Also look into lender-funded PMI. A lot of them offer this by either adding something to the rate or rolling the upfront premium into the new loan balance. That obviously means you're paying PMI for the life of the loan, but can always refi out of it when the appraisal allows. My folks just bought my sister a house for cash, so she could move and get her other house ready for sale. As soon as old house sold and she had it off her credit report, she took out a loan on the new house to pay our folks back. The bank didn't care how long she had owned it, just that it appraised and that she qualified for the mortgage. Some banks will require "loan seasoning" in order to refi. I don't think it's ever more than 12 mos.

fintstone · fintstone's Garage

Is the current loan not Fannie Mae or Freddie Mac? If it is, why not a HARP Refi?

RANDY P · RANDY P's Garage

It's likely a HARP there are several reasons why the PMI will still exist

1)- it's a conventional loan on HARP- where they don't use an appraisal, but if PMI is present you still need it- so if you are upside down on the house but want a lower payment due to better rates you still qualify.

2) it's FHA, and that will always have PMI if it's 30

3)- at 87% LTV you have no choice to accept PMI or an inflated rate. The problem is, the bank will frown upon choosing the appraisal based on higher value. Banks are so tight about appraisal requirements chances are all of them will be of similar value since any liberties taken in attempts to raise will be seen as attempts to fraud. It actually IS fraud to use multiple appraisers to manipulate value.

In summary, they are screwed.

RANDY P · RANDY P's Garage

Quote:

Originally Posted by Rick Lee

Figure out the cost of PMI over five yrs. and compare to cash needed to reduce loan balance by enough to not need PMI. Also look into lender-funded PMI. A lot of them offer this by either adding something to the rate or rolling the upfront premium into the new loan balance. That obviously means you're paying PMI for the life of the loan, but can always refi out of it when the appraisal allows. My folks just bought my sister a house for cash, so she could move and get her other house ready for sale. As soon as old house sold and she had it off her credit report, she took out a loan on the new house to pay our folks back. The bank didn't care how long she had owned it, just that it appraised and that she qualified for the mortgage. Some banks will require "loan seasoning" in order to refi. I don't think it's ever more than 12 mos.

Appraised value is what they care about in the initial 12 mos. You are basically locked to purchase price unless there is some extenuating circumstances.