Profile picture for SietskeC.Van Schaik

Assume or refinance after divorce?

Should I assume mortgage or refinance? My name is NOT on the mortgage OR the title, but I was awarded the home in our divorce.

WellsFargo is willing to let me assume the loan, for about $2000 in fees. But I will be stuck with a 5.25% interest rate... My credit was 748 last I checked, I feel I could get a better rate.

Worthington Federal Bank gave me good faith estimate a few months ago for a no-closing cost loan for 86,880 at 3.875% (4.993% APR)

The loan originated 04/09, it's 30 years fixed at 5.25%. The original loan amount was 86000. I currently owe 82000. The house was appraised at 88000 when we bought it, but only so the closing cost would be able to be figured in. The 'unofficial' sales price was 75000...  I'm concerned it may not be appraised for enough either way.

I'm not sure which route to go... I really have no cash or equity to use for closing costs (or WellsFargo's fees). My ex-husband has been hounding me about it, because he wants to move on with his financial life.
  • February 20 2012 - Montevallo
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Answers (10)

If you cannot appraise high enough to cover your current loan, costs, and also have a little bit of equity left over (since 100% financing isn't available) then the refinance isn't really a viable option for you.

For the assumption, maybe Wells can work out an arrangement to pay the fees over an installment period?   Have you asked them if there are alternatives for that $2,000 they are asking for.  

If your ex is particularly motivated to get his name off the loan, maybe he can help out with the assumption fees.  

  • February 20 2012
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Profile picture for SietskeC.Van Schaik
According to Zillow, my 'Zestimate' is $85,200. I don't know how accurate those are. I may just be worrying for nothing, but I'd hate to pay several hundreds for an appraisal if I can't refinance.
  • February 21 2012
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Profile picture for sunnyview
I would call several local agents in your area and ask them if they are willing to do a CMA for your house.

They will be able to pull the recent sales to give you an estimate of value and also see if your have the comps you will need for an appraisal before you pay for one. If you can refinance the house, it is probably worth seeing if you can get the lower 3.8 rate as long as the fees are not too high.
  • February 21 2012
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Could you try to get a commitment from your ex to pay for the appraisal fee? They are around $400. This would eliminate your risk and help you to want to move forward, thus helping him obtain his goal of financial independence. Then based on the scenario you described, I would refinance at the lower interest rate. Roll the closing costs into the loan. If you can afford the payment, consider a 15 year mortgage so you can have a debt free house. By choosing a 15 year note, you may be able to have an even lower interest rate & pay it off a decade and a half sooner.

I would not assume the $82,000 in debt on the existing loan since you agreed to pay $75,000 to your husband for the house. The assumption would not be beneficial to you at all. Go for the refinance.

  • February 21 2012
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Profile picture for shapiroamg
No recomendations will be good unless we know the value.
If your ex is in such a rush, then propose to him to pay the $2k assuption fee. You could always look into refinancing after that. Yes rates are better but if the value is that much lower, the assuption should be done (assuming you want to stay in the house onger term).
  • February 21 2012
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If you are going to refinance, when you "lock" is extremely critical.

Have a look at the thread:
Rates on the Move Again

Rates were much lower a week ago then they were 3 months ago.
Rates are higher this week then they were last week.

If you do it "right", you should not have any out of pocket expenses, and should be below 3.75% for 30 yr fixed.

Also, you should find out if you have a Freddie or Fannie loan, as if your property doesn't appraise high enough for a refinance, a HARP2 refinance may still be an option if it is a government loan.


(By the way, the "average" quote on ZMM is for $200k + loans and less than 80% loan to value ratio, so rates for your specific case could be higher than ZMM average).  (4.993% APR means a lot of "fees" are being rolled into that loan.  You want 3.75% APR with today's competitive rates.)

Remember you need less than a 80% loan to value ratio if you want to avoid paying for mortgage insurance.
  • February 21 2012
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I would add to the discussion that you should reduce the problem to dollars and cents vs. interest rate.  Saving 1.375% on a loan of that size is worth about $1,100 per year in saved interest.  And that saved interest would have been tax deductible.  So at a marginal tax rate of 25%, your real savings would be $825 per year.  Compare that to the total costs of the refinance to see what makes sense.  It's about dollars...not interest rate. 

Also, you should look into the conditions of the assumption.  In some cases the original borrower is not completely "off the hook". 
  • February 21 2012
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If looking at the "tax deductible" savings, remember that the "standard deduction" for "single" is $5700.  Thus you have to be able to itemize more than $5700 to make itemizing on schedule A worthwhile.

5.25% of $82,000 is only $4305.  So unless there are other items to itemize, there is no point in itemizing and it will be a "loss", thus you don't reduced the amount of the "saved interest" by any "tax deduction" savings missed.  There aren't any.
  • February 21 2012
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It all depends on your appraisal--rates are far better than 5.25% right now so you could significantly lower your payment if your house will appraise for $82k plus closing costs rolled in.   I will be happy to pull comps preliminarily just to see what the recent sales look like. [promotion and contact information deleted by Zillow moderator. Please see our Good Neighbor Policy]

Dawn
  • February 21 2012
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getting several CMA's are likely worthwhile to see what range the loan to value ratio will be.

But before selecting a random loan officer or broker or bank... I suggest doing some anonymous quote requests on Zillow Mortgage Market Place, and then asking the loan officers on the board about potential choices, and reading the content provided by various loan officers.  As with any profession, some are much better and some much more honest than others.

Also check out some of the other AVM's listed on the thread:
What is the most complete list of Home Estimating websites that you have-seen?

Estimated values vary widely, regardless if a CMA or other, and only what the lenders' Appraiser states will make any difference.

And if you qualify for HARP-2, the appraisal is not relevant and any lender can do that refinance for you.
  • February 21 2012
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