Profile picture for xenion

Options on FHA refi

I'm hoping someone can give me advice on how best to proceed. My goal is to reduce my monthly mortgage payment and/or getting around $5000 cash-out to pay off credit cards.

First-time home owner, current mortgage is FHA and closed in August 2009. Appraisal at that time was $125,000. Original loan amount $119,740.

Current Principal $114,691 @ 5.2% effective, P&I = $657
Second Mortgage Principal $3,895 @ 6.2%, P&I = $47

I keep getting a bunch of prescreen offers that are enticing, but I don't want to jump the gun on a shady company.

I'm considering 5/1 ARM, as we plan to be moved by then, but I guess you never know. Other option would be another 30-year fixed. I have around 700 credit, but don't really want to put in a bunch of apps to different mortgage companies to get estimates, as I'm afraid of that having a negative impact.

I'm just hoping I can somehow get P&I down to $500. Can anyone offer advice on mortgage companies, and if it is even a good idea to refi at all.
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August 29 2011 - Maryville
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Answers (4)

Best Answer
Profile picture for CoryUre
You are going to be up against a few issues:

First, FHA only allows 85% loan-to-value on cash-out refinances. If just the first lien is to be refinanced and the second will subordinate your appraisal will have to come-in above $141,000 to pull $5,000 out.

If the second lien is to be rolled-up into the new lien and you are pulling-out an additional $5,000 your appraisal will have to come-in over $146,000.

Assuming you pay-off your second with the refinance and pull-out an additional $5,000, to get your P&I payment down around $500 a month your interest rate would have to be in the 1.5% range.

Only an appraisal will tell you how much you can get-out of the loan. But I know 1.5% is not available through FHA financing.

The other option would be to Streamline your first mortgage and have the second subordinate. At current rates this would bring your P&I payment into the $500's.

One other sticking point, in 2009 the monthly MI on FHA loans was 0.55%. Now it's 1.15%. What I've found is that any savings in P&I gets negated by the new MI rate which makes the total monthly payment about the same as it was before the refinance. Under FHA guidelines the refinance has to reduce the overall payment by at least 5% to do the refinance.

I hope that helps a bit.
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August 30 2011
and because you got the second after the purchase loan when or if you refinance it will be considered a cash out refi and will cost more.

If they have a fixed rate 2nd seasoned for 12 months or a Heloc with no draws in the last 12 months, it is a Rate & Term if they combine for a new FHA loan, up to 97.75% LTV. Will still need an appraisal and higher MI payments though.
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August 31 2011
Fha does have a streamline refinance, but this does not allow for cash out. The benifit of the streamline is your loan to value is not an issue. There are also protections in place for the borrower in that there has to be a clear benefit and overall monthly payment must drop by 5%.  Now if you want to go from a 30 yr fixed to an ARM you may need to credit qualify because ARMS are coinsidered more risky than fixed rates.
 
There ar eother considerations to consider as well, There are twpo types of streamlines ones with an appraisal and ones without an appraisal. The rules are different for each, ANd you must also keep in mind that the mortgage insurance fee structure has changed since you bought your home. Now the monthly MI is 1.15% of the outstanding loan balance, whereas  your monthly is probably at .85% so your payment could actually go up not down. You cannot roll the second trust into a streamline and because you got the second after the purchase loan when or if you refinance it will be considered a cash out refi and will cost more. My advise to to get the second trust paid off and then you will have that $47 extra each month to apply to your credit cards. You probably didn't get in a hole overnight so It will take some time to get out of the hole as well. Best of luck.
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August 31 2011
"I'm just hoping I can somehow get P&I down to $500."

The only way to do that on a balance of $114,691 is at a rate of 3.263%. Your only option to get that rate is with a 5/1 ARM. If you "may" be leaving within 5 years, is it really worth it?
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August 30 2011
 
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