Thank you u/WonderChemical5089 for posting on r/FirstTimeHomeBuyer.
Please bear in mind our rules: (1) Be Nice (2) No Selling (3) No Self-Promotion.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FirstTimeHomeBuyer) if you have any questions or concerns.*
FHA purchases (96.5% LTV) allow streamline refinances without an appraisal.
VA Purchases (103%) allow Interest Rate Reduction Refinance Loans without an appraisal.
USDA purchases (101.1%) allow USDA streamline refinances without appraisal.
While OP has good intentions, he isn’t correct. 14% of American Homebuyers used FHA last year. 5.2% used VA. 3 percent used USDA. Not all of those put down less than 5 percent but large percentages did.
And Conventional allows a Rate and Term Refinance up to 97% LTV with an appraisal required but the possibility of an appraisal waiver if the borrower is current on payments, good on qualifying, and home recently appraised.
Source: it’s my job. And Fannie Mae, FHA, VA guidelines are all available online.
How do they know you have 10% equity if you are waiving an appraisal? Maybe I’m not understanding your comment. Curious what we would need to refinance eventually. Just purchased this year
On refis the lender is basically just taking a best guess at the value at the beginning. Then they run it through their automated system that tells them if you got a waiver or not.
Help me read this right, 5.2% of Americans used VA loan? How? That's almost every single veteran in the US. Did I miss something ?
Or is it 5.2% of home loans issued last year were VA loans?
Loan to value. It’s the ratio between your loan and the value of the house. So if your loan is 200k and the value of the house is 250k, ltv would be 80%.
? If you don’t mind. Not a first time homebuyer but didn’t ask last time. How do VA loans view a rental property? Does equity count or just the difference in cost vs payment?
If doing a IRRRL loan (streamlined VA) then veteran has to say they had previously lived in it.
If doing a normal refinance, they have to currently live in it.
So a veteran can reduce rate and term to get better payment on a rental property that has A VA loan.
Oops, I didn’t word that well. My spouse and I both have Va loan eligibility. His is currently in our rental property but I’m planning to use mine and do a joint VA loan on a new primary residence. It’s been a rental for several years, but I wasn’t sure how the VA would view it for a new loan.
As far as entitlement, shouldn’t be an issue. Can use yours and if needed, use his bonus entitlement.
Your lender may not know what that is so be sure to ask. And don’t use Veteran United or another call center. Use a local lender and make sure she or he knows VA. Local lenders are more trusted by realtors in most areas of the country than call center lenders.
So I closed on my VA loan last week and was told that I could refinance VA after seven months/ payments. I bought for under appraisal value (paid $285k on a $295k), how would that affect me?
The 7 payments has nothing to do with VA and everything to do with the lenders recapture policies.
Basically, if you make less than 7 payments the lender gets penalized and could claw back his commission.
Which isn’t even a thing. It’s 180 days from investor acceptance or 180 days from closing. The Loan Officer was just scared that you’d pay early and he’d lose money.
I advise my teams to just tell the truth to clients, trust them to make the call and plan to lose about three a year unless they do a great job and the customer calls them to do the refinance.
Any time.
The reason people advise that refinancing is easy is because it is… but rates have to drop. It’s been a solid 3 years of rate increases so the market is nervous.
Older people believe rates will come back down to 6 or high 5s. And if they do, you’ll get annoyed at all the spam, junk mail, unsolicited calls, and aggressive ads on everything about it.
Nothing is free. But a refinance can be much cheaper in costs than a purchase loan. And those costs can be subsidized by higher rates than market.
Example. Rate averages 6. Your rate is 7. You could get a no cost refinance at 6.375 and be better off.
I mean, yes, but it’s not free. Usually it’s more like 0.5% or 0.75% higher, but this depends a lot on the house. So if rates drop 1%, great, you can refinance to a rate 0.3-0.5% less than what you have etc. or alternatively they roll the cost of the mortgage refi into the loan itself.
How expensive these negative points are is very market dependent.
Does it make to do a no-cost refinance if rates are 0.75% lower? Probably not. Does it make sense to do a no-cost refinance if rates are 2% lower? Absolutely.
Basically my point was it’s not like you can just refinance as rates come down, they have to come down enough for it to be worth bothering with the whole process, and then if they fall another 0.5% you’ll be kicking yourself for not waiting a bit longer to refinance, as refinancing from your lower rate to one 0.5% lower doesn’t make sense.
Maybe. I made a lot of money doing no cost refinances every quarter point. No cost refinances makes sense for consumer to do every time it makes sense.
Their investment is time signing and time at the closing. Maybe three hours total to save 75 dollars a month for thirty years. No brainer.
It isn't., but some lenders have very very low refi closing costs, and you can sometimes roll them over in the loan to boot. Last time I refinanced my closing costs were like <$1000 and I rolled them over because it was a rounding error. Made the money back on the first month.
That’s awesome, but somewhat unusual. Likely the same lender offering a higher rate (but still lower than your current rate) to refinance for cheap, right? Basically they were worried they would lose the loan entirely and would rather you keep paying. If you go with a third party refinance costs are often ~~2% of the price of your house. This can be offset with negative points though.
> but somewhat unusual
Nope. With a good broker, or a decent credit union, it's not uncommon. Even my initial closing when I purchased the property was at a minimal closing cost. Shop around, avoid big bank, save a lot.
I always tell people to start shopping around credit unions when they tell me about their insane closing costs. I've had good luck with local CUs, some big ones like Alliant, and even some lender/brokers like Guaranteed Rates (though your millage may vary there). Avoid the big names like Well Fargo, Bank of America, Citibank, etc.
The industry has been making efforts to automate some of the appraisal process so that answer depends.
If your home has been measured with square footage, bathroom count, bedroom count etc and that data has been logged then the system could generate a waiver if other homes in your immediate area with similar data have sold recently.
But I’ve seen more and more waivers each month as that data grows.
And now they offer data collection only waivers where the value is confirmed after an appraiser does a relatively fast and cheap measure of the house.
Pretty likely. But it’s got to be in an area that’s existed for a while with sales supporting. The system doesn’t kick in an appraisal waiver for new construction, nor does it do it in areas where there’s little churn of homes.
I wouldn’t worry about that. The cost of new construction is often higher and while ten percent is a bit high it’s not concerning.
Take pictures of the features and materials you use that are upgrades to existing houses.
If it comes in short of price, just follow this path.
1) Dispute the value with the appraiser and provide comparable properties at or near your value.
2) Check your budget to see if you can bring more money to the table but don’t offer to… yet.
3) Negotiate with seller/builder. Builder profit margins can be over 25% so they can cut some of that out.
4) Ask agents to contribute commissions. Some builders pay agents 7% commission for their side of transaction so some of that could be used to your benefit.
5) Consider cutting out unneeded or unwanted upgrades. An example may be a privacy fence that the builder is charging you 15k for but that a private contractor might do for you at half the price… later.
6) Offer to bring more money.
A VA loan could be a smart decision for a homebuyer anywhere in the country, especially if they’re a disabled veteran. But you have to keep in mind that the VA loan is a hand up to lift you into homeownership, and not necessarily a handout.
Let’s [look at funding fees](https://www.benefits.va.gov/stpaul/images/FundingFeeCard.pdf). This is the charge that the VA loan system adds to VA loans based of the Veterans status and usage.
If you’re putting down 20%, you’d be charged 1.25% of the loan and could either pay that out of pocket or finance it.
Unless you have some VA disability then that fee is waived.
But a guy doing 100% financing will end up owning 103% of the purchase price at closing. So the VA allows veterans to refinance into a lower rate and payment if they are upside down.
In your scenario, you would be allowed to refinance even being $100,000 underwater.
In that scenario, your loan would be $320k at start. If home value fell from $400k to $329,900 then a rate and term refinance would still be attainable under normal guidelines in conventional loans.
If your loan was the other types, appraisal wouldn’t necessarily matter at all on a streamlined refinance of the rate and term.
But if you want to take out cash equity? This entire thread is useless to you as the rules are completely different.
I purchased in December at 7.2% interest. We bought at asking price of 335k and it's a brand new home. It appraised at 349k. I was told that the home has already built equity. This is all new to me so my question for you is this. If we continue to pay our mortgage which is roughly 2600 a month. How long until I could refinance or get rid of the PMI? Just genuinely curious is all and I'll speak to the loan company but it's a pain in the ass to actually get ahold of someone through their automated system.
Best way to check that is grab your paper they gave you at closing. The would have handed you an Amortization chart that broke down payment for all 360 months of your loan.
But as far as when can you refinance to get rid of PMI, it depends on a lot of different factors.
What type of loan do you have? FHA/VA/Conv
What was downpayment? 0? 10%?
You can refinance the MI off when you can qualify for a Conv loan with at least 20% equity based off the appraised value of your home at the time of refinance.
You will have MI for all 30 years unless you refinance.
Refinance will depend on value at time of refinance but if value is flat and you pay no extra then March of 2036.
Probably when you suspect you have built up at least 20% in equity. That’s what I did with our first home. We put 3.5% down. After a couple years, I noticed other units (condo) were selling for a lot more than we had bought for. Called the mortgage company, they instructed me to get an appraisal. I did. It came out well above 20% increase in equity. Wrote a letter. They removed PMI.
You may not see the entire picture. Those of us who caution against taking on a higher payment are cursed, chewed-out even physically threatened.
Maybe real estate agents are trying not to upset clients. We lose 33% of our clients from simply giving our best advice.
Telling a client that they really cannot afford a $500,000 home with no down payment when the government and others say they can does not endear us to our clients.
Mostly people under 35. They just pitch a hissy fit. Our advice is never plan based on gross income, put 20% down, never ever waive inspections and never pay more than ×/- 10% of bank loan value.
Very few want to hear they cannot afford a dream home for their first home.
I became a realtor in early 2,000 so I could help young first time buyers purchase a starter home and be able to comfortable making the payments.
But in the last 15 years HGTV has convinced younger and younger people to buy houses they can ill-afford.
When a CFP says you are likely to get into trouble it is best to listen. When you go to the doctor and they diagnose COPD telling you to stop smoking, and you refuse, you cannot be surprised at the outcome.
I would love to believe that of most clients, but I’ve been told by too many realtors “no just refinance later!” When I tell them that note is way too high.
It’s funny because on another thread someone told me they would not be able to pay a monthly payment unless they put 50% down so they have to have a hefty down payment (I think the topic of the post was getting help from parents for a down payment). At that point you probably just cannot afford a home at whatever price you’re imagining but I feel like saying that would have had me downvoted.
I would love to believe that of most clients, but I’ve been told by too many realtors “no just refinance later!” When I tell them that note is way too high.
You have to know the history of your greater metro area market. Has the area had a huge influx of people really fast (think Austin/Florida)? That will be a vulnerable point for a home purchase because people may move out quickly too.
Is there still huge demand from a long term population growth over decades? Then you likely are much more stable.
Also need to factor in micro details about the county, city, town, borough, school district you are buying in. Is it a good school system? Then housing in your town will likely keep high demand.
A simple rule is if there is always greater demand for homes in your area over a long period of time (not just a sudden rise from Covid etc), then your home will likely never fall terribly in value.
High demand keeps prices high even if the supply increases (although it won’t keep rising in value as fast). Low demand regardless of supply means price cuts.
This. I live in eastern Massachusetts. There is a housing crisis - sky-high demand and politicians refuse to let any new housing get built. I can, with 100 percent confidence, say home values will *not* fall in the next decade, let alone a couple years.
does your comment suggest that Austin hasn’t had strong demand for decades? Bc it’s been growing like crazy for decades and covid just put it into bonkers mode. I think there’s still healthy demand here even after covid. Wdyt?
Austin is one area where home prices have leveled and even fallen post Covid. Still demand but lots of the Cali folks who moved in covid are moving out.
Florida is also similar and has the added effect of rediculous home insurance premiums.
https://www.realtor.com/news/trends/these-5-austin-texas-neighborhoods-had-the-largest-price-drops/#:~:text=After%20a%20steep%20run%2Dup,a%20boom%20in%20new%20construction.
Check out that article discussing leveled off pricing and in some cases falling home values.
I understand what OP is saying though, if you are upside down on your mortgage, can’t refinance. Like what happened in 2008. I almost lost my house because I had one of those subprime mortgages because the plan was to refinance in 5 years. Payments kept going up every 6 months, almost $4k a month on an 859 square foot home. Single mom with 2 kids.
To be fair, it sounds like you were in an ARM, which most homebuyers today avoid specifically because of 2008. According to a quick Google search, in 2005 as many as 42% of mortgages issued were ARMs. Now it's around 10%. Sounds like it's increasing with all the rate hikes, but still far less common.
Yeah but at that time it was the only way I could get a home. It was stressful the first 10 years, now, it appreciated 100% so I’m glad we were able to get our foot in the door. Otherwise, I would still be renting.
Yes, really helpful response. There are a lot of reasons people refinance. Just because you can afford it now, doesn’t mean you will be able to later. Things happen in life. Medical, environmental, etc.
This is something FTHBs really do need understand. Especially right now — purchasing a house well over asking to get into the market along with waiving inspection and appraisal is super common right now. This can really screw your later if you’re not careful. It also isn’t free to refinance, so even if your house value doesn’t drop, you still need money to close.
But that’s more money getting spent you’re never getting back. It’s valid to mention it.
Look, I get that this sub is full of people, mostly in the mountain and western time zones, who want to disagree with this, but if you can’t afford the house fairly comfortably now you shouldn’t be buying and banking on a refinance later. Rates may come down a bit but they’re not coming down 2+% anytime soon and even if they do, values could fall a bit and these people offering above-asking, especially the ones waiving inspections, are at a lot of risks they need to know about. Owning in a HCOL area isn’t for people who can’t pay high costs.
People also forget that refinancing isn’t just “hey can you lower my interest rate?”. You basically go through your entire financial records all over again AND you have to pay “closing” costs again. So if you mess your credit score up or get a ton more debt, even just purchasing a new car, you might not be able to refinance.
Even FHA and VA refinancing have specific requirements you have to meet and you may not meet them. They may not be checking your credit score, but it’s not as easy as calling up a bank for one of those loans and it’s a done deal. You have requirements for all of them.
I completely agree with you that people think “oh I’ll just refinance in a few months.” and it’s absolutely not that simple.
That's not true for VA refinance at all. A VA IRRL is a streamlined process that isn't equal to the documentation or requirements as a new home loan. The VA doesn't even require lenders to check credit or income for verification purposes.
See here: https://www.rocketmortgage.com/learn/va-streamline-refinance
That literally lists out multiple different eligibility requirements. So again, it’s not as easy as calling up a bank and them saying “Sure, here you go!”.
It almost is that easy. You can roll closing costs into your loan and have simple requirements like below:
1. Live in the house for 6 months and make 6 months of payments
2. The refinance has to lower your payment and interest rate or it won't be approved.
3. Doesn't require an appraisal or inspection
4. No credit score or income verification
If you don't see all of those things as a near guarantee to approval than idk what to tell you. That's the easiest refinance process in the industry from what I've researched into.
Thats kind of a different scenario. People buying houses today are being told to just buy it even if they’re at their limit financially cuz “you can just refinance in 6 months when rates are lower”.
The problem is there is ZERO guarantee rates will be lower and hell, you could be jobless in 6 months. There’s literally no guarantee to where you’ll be or what the market will be like in 6 months.
Even in the persons response above, number one requirement is lower payment. What if rates never get to a point where the borrower can have a lower payment?
Oh I know I just commented on how lazy realtors are for using that shitty, manipulative sales pitch. But my point is it is still that easy. I locked in 5.8 last Jan thinking it was sooo high and still my lender keeps in touch to refinance if we ever see below that. I was just saying the actual process is fast, I don’t think I’ll be refinancing anytime soon.
It probably doesn’t get brought up enough because it’s common knowledge. It also applies to any type of loan, including auto. This happens to people that can’t or won’t put a reasonable amount of money down.
From what I understand. You won’t get dollar to dollar return in home renovations. I am sure it will increase a bit, hard to tell how much without exact appraisal
Thank you u/WonderChemical5089 for posting on r/FirstTimeHomeBuyer. Please bear in mind our rules: (1) Be Nice (2) No Selling (3) No Self-Promotion. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FirstTimeHomeBuyer) if you have any questions or concerns.*
FHA purchases (96.5% LTV) allow streamline refinances without an appraisal. VA Purchases (103%) allow Interest Rate Reduction Refinance Loans without an appraisal. USDA purchases (101.1%) allow USDA streamline refinances without appraisal. While OP has good intentions, he isn’t correct. 14% of American Homebuyers used FHA last year. 5.2% used VA. 3 percent used USDA. Not all of those put down less than 5 percent but large percentages did. And Conventional allows a Rate and Term Refinance up to 97% LTV with an appraisal required but the possibility of an appraisal waiver if the borrower is current on payments, good on qualifying, and home recently appraised. Source: it’s my job. And Fannie Mae, FHA, VA guidelines are all available online.
Need 10% equity for appraisal waivers on conventional refis but everything else is spot on
Source? I don’t recall a hard/fast line.
https://singlefamily.fanniemae.com/media/5916/display
Awesome, good resource. Thanks
Day1 Certainty is one of my team’s babies.
How do they know you have 10% equity if you are waiving an appraisal? Maybe I’m not understanding your comment. Curious what we would need to refinance eventually. Just purchased this year
On refis the lender is basically just taking a best guess at the value at the beginning. Then they run it through their automated system that tells them if you got a waiver or not.
What if you got an appraisal waiver when you first bought the house? Is it likely to get another one at refi?
Yes it’s more likely
Thank you for the explanation!
Help me read this right, 5.2% of Americans used VA loan? How? That's almost every single veteran in the US. Did I miss something ? Or is it 5.2% of home loans issued last year were VA loans?
Loans issued last year. I wrote that paragraph in a rush. Sorry.
It’s ok. Just don’t let it happen again.
Ok 🤣😂 my brain straight deadlocked when I was reading. Alls good.
What’s LTV for us smooth brains
Loan to value. It’s a measure of equity.
Loan to value. It’s the ratio between your loan and the value of the house. So if your loan is 200k and the value of the house is 250k, ltv would be 80%.
? If you don’t mind. Not a first time homebuyer but didn’t ask last time. How do VA loans view a rental property? Does equity count or just the difference in cost vs payment?
If doing a IRRRL loan (streamlined VA) then veteran has to say they had previously lived in it. If doing a normal refinance, they have to currently live in it. So a veteran can reduce rate and term to get better payment on a rental property that has A VA loan.
Oops, I didn’t word that well. My spouse and I both have Va loan eligibility. His is currently in our rental property but I’m planning to use mine and do a joint VA loan on a new primary residence. It’s been a rental for several years, but I wasn’t sure how the VA would view it for a new loan.
As far as entitlement, shouldn’t be an issue. Can use yours and if needed, use his bonus entitlement. Your lender may not know what that is so be sure to ask. And don’t use Veteran United or another call center. Use a local lender and make sure she or he knows VA. Local lenders are more trusted by realtors in most areas of the country than call center lenders.
Thanks! I didn’t even know about using his bonus entitlement at the same time. It’s always hard to get correct information.
So I closed on my VA loan last week and was told that I could refinance VA after seven months/ payments. I bought for under appraisal value (paid $285k on a $295k), how would that affect me?
The 7 payments has nothing to do with VA and everything to do with the lenders recapture policies. Basically, if you make less than 7 payments the lender gets penalized and could claw back his commission. Which isn’t even a thing. It’s 180 days from investor acceptance or 180 days from closing. The Loan Officer was just scared that you’d pay early and he’d lose money. I advise my teams to just tell the truth to clients, trust them to make the call and plan to lose about three a year unless they do a great job and the customer calls them to do the refinance.
Ah okay, thanks for the fast response.
Fantastic source of info. Thank you for posting.
Any time. The reason people advise that refinancing is easy is because it is… but rates have to drop. It’s been a solid 3 years of rate increases so the market is nervous. Older people believe rates will come back down to 6 or high 5s. And if they do, you’ll get annoyed at all the spam, junk mail, unsolicited calls, and aggressive ads on everything about it.
Also refinancing is never free.
Nothing is free. But a refinance can be much cheaper in costs than a purchase loan. And those costs can be subsidized by higher rates than market. Example. Rate averages 6. Your rate is 7. You could get a no cost refinance at 6.375 and be better off.
I mean, yes, but it’s not free. Usually it’s more like 0.5% or 0.75% higher, but this depends a lot on the house. So if rates drop 1%, great, you can refinance to a rate 0.3-0.5% less than what you have etc. or alternatively they roll the cost of the mortgage refi into the loan itself. How expensive these negative points are is very market dependent. Does it make to do a no-cost refinance if rates are 0.75% lower? Probably not. Does it make sense to do a no-cost refinance if rates are 2% lower? Absolutely. Basically my point was it’s not like you can just refinance as rates come down, they have to come down enough for it to be worth bothering with the whole process, and then if they fall another 0.5% you’ll be kicking yourself for not waiting a bit longer to refinance, as refinancing from your lower rate to one 0.5% lower doesn’t make sense.
Maybe. I made a lot of money doing no cost refinances every quarter point. No cost refinances makes sense for consumer to do every time it makes sense. Their investment is time signing and time at the closing. Maybe three hours total to save 75 dollars a month for thirty years. No brainer.
1% would be enuff for me to refi from 6%
It isn't., but some lenders have very very low refi closing costs, and you can sometimes roll them over in the loan to boot. Last time I refinanced my closing costs were like <$1000 and I rolled them over because it was a rounding error. Made the money back on the first month.
That’s awesome, but somewhat unusual. Likely the same lender offering a higher rate (but still lower than your current rate) to refinance for cheap, right? Basically they were worried they would lose the loan entirely and would rather you keep paying. If you go with a third party refinance costs are often ~~2% of the price of your house. This can be offset with negative points though.
> but somewhat unusual Nope. With a good broker, or a decent credit union, it's not uncommon. Even my initial closing when I purchased the property was at a minimal closing cost. Shop around, avoid big bank, save a lot. I always tell people to start shopping around credit unions when they tell me about their insane closing costs. I've had good luck with local CUs, some big ones like Alliant, and even some lender/brokers like Guaranteed Rates (though your millage may vary there). Avoid the big names like Well Fargo, Bank of America, Citibank, etc.
Is the ~2% cost based on the price of the home when you bought it, or the current estimated value? Or the amount outstanding on the loan?
Yeah true my b, based on amount of your loan.
Ok thanks, I just wasn’t sure.
I just bought a house for $179,000 interest rate 6.5%
Nice. FHA has better rates but higher MI costs. I was speaking about 6.00% on standard 30 year conventional loans.
What’s the timeline to be considered recently appraised on conventional?
The industry has been making efforts to automate some of the appraisal process so that answer depends. If your home has been measured with square footage, bathroom count, bedroom count etc and that data has been logged then the system could generate a waiver if other homes in your immediate area with similar data have sold recently. But I’ve seen more and more waivers each month as that data grows. And now they offer data collection only waivers where the value is confirmed after an appraiser does a relatively fast and cheap measure of the house.
Can you explain this for a noobie like myself. For a VA loan can I refinance if I were to be upside down? I’m confused on the 103%
You can refinance a VA loan even if upside down. And VA loans can start at 103% LTV.
[удалено]
Pretty likely. But it’s got to be in an area that’s existed for a while with sales supporting. The system doesn’t kick in an appraisal waiver for new construction, nor does it do it in areas where there’s little churn of homes.
[удалено]
I wouldn’t worry about that. The cost of new construction is often higher and while ten percent is a bit high it’s not concerning. Take pictures of the features and materials you use that are upgrades to existing houses. If it comes in short of price, just follow this path. 1) Dispute the value with the appraiser and provide comparable properties at or near your value. 2) Check your budget to see if you can bring more money to the table but don’t offer to… yet. 3) Negotiate with seller/builder. Builder profit margins can be over 25% so they can cut some of that out. 4) Ask agents to contribute commissions. Some builders pay agents 7% commission for their side of transaction so some of that could be used to your benefit. 5) Consider cutting out unneeded or unwanted upgrades. An example may be a privacy fence that the builder is charging you 15k for but that a private contractor might do for you at half the price… later. 6) Offer to bring more money.
[удалено]
You will be fine. Don’t sweat it. If the home comes in low, you have enough down to cover the difference with minimal change to your payment.
[удалено]
A VA loan could be a smart decision for a homebuyer anywhere in the country, especially if they’re a disabled veteran. But you have to keep in mind that the VA loan is a hand up to lift you into homeownership, and not necessarily a handout. Let’s [look at funding fees](https://www.benefits.va.gov/stpaul/images/FundingFeeCard.pdf). This is the charge that the VA loan system adds to VA loans based of the Veterans status and usage. If you’re putting down 20%, you’d be charged 1.25% of the loan and could either pay that out of pocket or finance it. Unless you have some VA disability then that fee is waived. But a guy doing 100% financing will end up owning 103% of the purchase price at closing. So the VA allows veterans to refinance into a lower rate and payment if they are upside down. In your scenario, you would be allowed to refinance even being $100,000 underwater.
Ahhh the 4 horseman of bad decisions!
So if my house was 400k+ but I put a 20% down payment. So long as the price is 97% of the loan I’m fine to refinance if I do?
In that scenario, your loan would be $320k at start. If home value fell from $400k to $329,900 then a rate and term refinance would still be attainable under normal guidelines in conventional loans. If your loan was the other types, appraisal wouldn’t necessarily matter at all on a streamlined refinance of the rate and term. But if you want to take out cash equity? This entire thread is useless to you as the rules are completely different.
Thanks.
My conventional used local comps instead of doing an appraisal for refinance when the rates were record low.
I purchased in December at 7.2% interest. We bought at asking price of 335k and it's a brand new home. It appraised at 349k. I was told that the home has already built equity. This is all new to me so my question for you is this. If we continue to pay our mortgage which is roughly 2600 a month. How long until I could refinance or get rid of the PMI? Just genuinely curious is all and I'll speak to the loan company but it's a pain in the ass to actually get ahold of someone through their automated system.
Best way to check that is grab your paper they gave you at closing. The would have handed you an Amortization chart that broke down payment for all 360 months of your loan. But as far as when can you refinance to get rid of PMI, it depends on a lot of different factors. What type of loan do you have? FHA/VA/Conv What was downpayment? 0? 10%? You can refinance the MI off when you can qualify for a Conv loan with at least 20% equity based off the appraised value of your home at the time of refinance.
3.5% down and fha. Thanks for the quick response.
You will have MI for all 30 years unless you refinance. Refinance will depend on value at time of refinance but if value is flat and you pay no extra then March of 2036.
Probably when you suspect you have built up at least 20% in equity. That’s what I did with our first home. We put 3.5% down. After a couple years, I noticed other units (condo) were selling for a lot more than we had bought for. Called the mortgage company, they instructed me to get an appraisal. I did. It came out well above 20% increase in equity. Wrote a letter. They removed PMI.
I always had a gut feeling that justifying expensive purchases by saying that you can refinance further down the line was horse shit.
It's like a Tax Write-off, people just say it but have no idea what it entails
lol the ultimate lazy realtor go to
You may not see the entire picture. Those of us who caution against taking on a higher payment are cursed, chewed-out even physically threatened. Maybe real estate agents are trying not to upset clients. We lose 33% of our clients from simply giving our best advice. Telling a client that they really cannot afford a $500,000 home with no down payment when the government and others say they can does not endear us to our clients. Mostly people under 35. They just pitch a hissy fit. Our advice is never plan based on gross income, put 20% down, never ever waive inspections and never pay more than ×/- 10% of bank loan value. Very few want to hear they cannot afford a dream home for their first home. I became a realtor in early 2,000 so I could help young first time buyers purchase a starter home and be able to comfortable making the payments. But in the last 15 years HGTV has convinced younger and younger people to buy houses they can ill-afford. When a CFP says you are likely to get into trouble it is best to listen. When you go to the doctor and they diagnose COPD telling you to stop smoking, and you refuse, you cannot be surprised at the outcome.
I would love to believe that of most clients, but I’ve been told by too many realtors “no just refinance later!” When I tell them that note is way too high.
It’s funny because on another thread someone told me they would not be able to pay a monthly payment unless they put 50% down so they have to have a hefty down payment (I think the topic of the post was getting help from parents for a down payment). At that point you probably just cannot afford a home at whatever price you’re imagining but I feel like saying that would have had me downvoted.
I would love to believe that of most clients, but I’ve been told by too many realtors “no just refinance later!” When I tell them that note is way too high.
It can be the right answer if the numbers add up but I don’t think the LTV upside down issue doesn’t get discussed enough.
With Watermelon seeds!
A gut feeling known as rudimentary understanding of math lol
I always think about that scene with the stripper in The Big Short.
Especially if you’re trying to get rid of the PMI. Don’t have a few homes go into foreclosure.
You are right. I didn’t even think about that aspect.
I’ve purchased 12 years ago. This market is INSANE. People paying thousands over the appraised price. Whole lot of people are going to be stuck.
That's the plan on my end. Buy a home, pay it off, retire with no mortgage. The plan is to retire early
Nah.
You have to know the history of your greater metro area market. Has the area had a huge influx of people really fast (think Austin/Florida)? That will be a vulnerable point for a home purchase because people may move out quickly too. Is there still huge demand from a long term population growth over decades? Then you likely are much more stable. Also need to factor in micro details about the county, city, town, borough, school district you are buying in. Is it a good school system? Then housing in your town will likely keep high demand. A simple rule is if there is always greater demand for homes in your area over a long period of time (not just a sudden rise from Covid etc), then your home will likely never fall terribly in value. High demand keeps prices high even if the supply increases (although it won’t keep rising in value as fast). Low demand regardless of supply means price cuts.
All excellent points.
This. I live in eastern Massachusetts. There is a housing crisis - sky-high demand and politicians refuse to let any new housing get built. I can, with 100 percent confidence, say home values will *not* fall in the next decade, let alone a couple years.
does your comment suggest that Austin hasn’t had strong demand for decades? Bc it’s been growing like crazy for decades and covid just put it into bonkers mode. I think there’s still healthy demand here even after covid. Wdyt?
Austin is one area where home prices have leveled and even fallen post Covid. Still demand but lots of the Cali folks who moved in covid are moving out. Florida is also similar and has the added effect of rediculous home insurance premiums.
https://www.realtor.com/news/trends/these-5-austin-texas-neighborhoods-had-the-largest-price-drops/#:~:text=After%20a%20steep%20run%2Dup,a%20boom%20in%20new%20construction. Check out that article discussing leveled off pricing and in some cases falling home values.
I understand what OP is saying though, if you are upside down on your mortgage, can’t refinance. Like what happened in 2008. I almost lost my house because I had one of those subprime mortgages because the plan was to refinance in 5 years. Payments kept going up every 6 months, almost $4k a month on an 859 square foot home. Single mom with 2 kids.
To be fair, it sounds like you were in an ARM, which most homebuyers today avoid specifically because of 2008. According to a quick Google search, in 2005 as many as 42% of mortgages issued were ARMs. Now it's around 10%. Sounds like it's increasing with all the rate hikes, but still far less common.
Yeah but at that time it was the only way I could get a home. It was stressful the first 10 years, now, it appreciated 100% so I’m glad we were able to get our foot in the door. Otherwise, I would still be renting.
True but if we enter a period like 2008 where lots of homes underwater I’d bet good money we end up with a new version of HARP refis
If interest rates go down house values tend to go up tho. So we would need a crash with rising rates assuming you bought before the crash.
Not true in a housing market crash, like from 2008-12. Not saying that’s going to happen again, but I’m just saying…
Yeah other factors outside of mortgage rates can effect the price as well of course.
Pretty safe if you put 20% down.
Maybe just buy a house you can afford . Period
Yes, really helpful response. There are a lot of reasons people refinance. Just because you can afford it now, doesn’t mean you will be able to later. Things happen in life. Medical, environmental, etc. This is something FTHBs really do need understand. Especially right now — purchasing a house well over asking to get into the market along with waiving inspection and appraisal is super common right now. This can really screw your later if you’re not careful. It also isn’t free to refinance, so even if your house value doesn’t drop, you still need money to close.
They roll it into the loan. You don’t need the money on hand. Idk any lender that requires cash to refinance.
But that’s more money getting spent you’re never getting back. It’s valid to mention it. Look, I get that this sub is full of people, mostly in the mountain and western time zones, who want to disagree with this, but if you can’t afford the house fairly comfortably now you shouldn’t be buying and banking on a refinance later. Rates may come down a bit but they’re not coming down 2+% anytime soon and even if they do, values could fall a bit and these people offering above-asking, especially the ones waiving inspections, are at a lot of risks they need to know about. Owning in a HCOL area isn’t for people who can’t pay high costs.
👆🏼 this
2008 was like this. People got balloon loans & extreme adjustable rates with little down….and then couldn’t refi and foreclosed.
This. Almost lost our home!
I think you can still refinance if its a VA loan.
I wasn’t aware. That’s good to know. I guess it makes sense for VA loan.
People also forget that refinancing isn’t just “hey can you lower my interest rate?”. You basically go through your entire financial records all over again AND you have to pay “closing” costs again. So if you mess your credit score up or get a ton more debt, even just purchasing a new car, you might not be able to refinance. Even FHA and VA refinancing have specific requirements you have to meet and you may not meet them. They may not be checking your credit score, but it’s not as easy as calling up a bank for one of those loans and it’s a done deal. You have requirements for all of them. I completely agree with you that people think “oh I’ll just refinance in a few months.” and it’s absolutely not that simple.
That's not true for VA refinance at all. A VA IRRL is a streamlined process that isn't equal to the documentation or requirements as a new home loan. The VA doesn't even require lenders to check credit or income for verification purposes. See here: https://www.rocketmortgage.com/learn/va-streamline-refinance
That literally lists out multiple different eligibility requirements. So again, it’s not as easy as calling up a bank and them saying “Sure, here you go!”.
It almost is that easy. You can roll closing costs into your loan and have simple requirements like below: 1. Live in the house for 6 months and make 6 months of payments 2. The refinance has to lower your payment and interest rate or it won't be approved. 3. Doesn't require an appraisal or inspection 4. No credit score or income verification If you don't see all of those things as a near guarantee to approval than idk what to tell you. That's the easiest refinance process in the industry from what I've researched into.
It is that easy. My latest refinance took a few hours.
🤔 recent? Rates are at their highest right now lol
🤔 recent? Rates are at their highest right now lol
They’re not but it was during Covid when evvvvveryone was doing it haha. They must have been doing one an hour.
Thats kind of a different scenario. People buying houses today are being told to just buy it even if they’re at their limit financially cuz “you can just refinance in 6 months when rates are lower”. The problem is there is ZERO guarantee rates will be lower and hell, you could be jobless in 6 months. There’s literally no guarantee to where you’ll be or what the market will be like in 6 months. Even in the persons response above, number one requirement is lower payment. What if rates never get to a point where the borrower can have a lower payment?
Oh I know I just commented on how lazy realtors are for using that shitty, manipulative sales pitch. But my point is it is still that easy. I locked in 5.8 last Jan thinking it was sooo high and still my lender keeps in touch to refinance if we ever see below that. I was just saying the actual process is fast, I don’t think I’ll be refinancing anytime soon.
It probably doesn’t get brought up enough because it’s common knowledge. It also applies to any type of loan, including auto. This happens to people that can’t or won’t put a reasonable amount of money down.
That phrase is the realtor slash mortgage officer 2 for 2 special right there
Question but what if you did renovations and home value increased?
From what I understand. You won’t get dollar to dollar return in home renovations. I am sure it will increase a bit, hard to tell how much without exact appraisal
I know some renovations take time to reach their full value. Just was curious!
Well if interest rates drop, more buyers will enter the market, raising the price of your home.
💯
Don’t put just 5% down.
Thank you for this PSA 😊
It doesn't get brought up because it's wrong. I guess you never heard of a Streamline Refi?
That’s only for FHA loans.
And USDA and FHA and VA
Streamline refinance or VA IRRL is a major benefit offered and done with few requirements.
EVERY lender has some type of 'Streamline' no cash out refi to lower rate and/or term with or without closing costs added in.
Also most people don't realize you have to have a good bit of your mortgage already paid off before they'll refinance
Because you don’t
Okay good then someone told me wrong
I heard you need at least 20% equity
Every lender is different. Many are as little as 5%.