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Refinance to Conventional from FHA to avoid PMI

Hello- 
My husband and I bought a house with an FHA mortgage last year. At the time, FHA seemed a good option because the interest rates (3.25%) were low and we could only afford 5% down payment. As a result, we are paying a monthly MIP (PMI) on our mortgage. We have saved up to 10% downpayment and were wondering which of the following options would make the most sense.
1. Switch to conventional in the next few months and put additional of 10% down (that we have saved up). 
2. Switch to conventional right now with 10% down + 10% equity (house prices in our neighborhood have drastically increased)
3.  Wait until we have 20% saved up and then switch to conventional (next year prob.). 
4. Continue with FHA to keep interest rate 3.25%. Transfer 20% towards mortgage. Pay MIP for next 5 years.  

We think by switching to conventional right now, we might avoid PMI. But, on the other hand, we might lose the 3.25% rate with FHA. 

Also - our house price has gone by at least 8-9%.
It would be great if we could get some suggestions.

Thank you!
  • November 03 2013 - Fairfax
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Answers (9)

It has been my pleasure to help many home owners refinance in VA with our Portfolio Jumbo loans even above 80% LTV.  Please contact me via my profile when you have a moment.
  • November 19 2013
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It depends largely how long you plan to own this house for. If you are there for the long run I'd be inclined to keep the 3.25 especially if you can pay your balance down to 78 of initial purchase price (or initial appraisal whichever was lower) by the time you reach the 5 year mark for MI removal. You likely will never again see the 3.25 fixed that you already have and it sounds like you have potential to remove your MI and enjoy the benefit of that low rate for the duration. Even if it takes your 6-8 years from inception to be at 78% it still should pencil in as the better move the longer you hold the loan and property for.
  • November 04 2013
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Get out of that FHA loan.  I know that giving up the 3.25% rate is hard to do but you are paying all that mortgage insurance and getting no tax benefit out of it. I believe at your LTV there are portfolio lenders out there that will refinance you into a single loan with no MI should you still be above the 80% LTV. Contact me through my profile for more information
  • November 03 2013
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Why do agents reply on the mortgage question section? Everything they say is incorrect on every post. All they do is mislead and give hope to things that are not possible!
  • November 03 2013
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Just to give you a rough idea, If you both had 720 scores I would be 1 point higher than your current rate on a 30 Year Fixed, savings aprx $400/month after paying the loan down $25K, assuming the $870K value is accurate. A 7/1 Arm would be aprx the same rate that you have now which would save aprx $800/month.

Once you reach the 5 year mark on your current loan you would have to pay the loan down aprx $50K the get the balance to 78% LTV. You should have a TIL from Closing showing when the annual MI stops, I estimate around payment 96 w/scheduled payments.
  • November 03 2013
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Profile picture for biglotsure
It is a jumbo loan. Loan balance is 720k. Estimated value per Zillow is 870k. Credit is reasonable - mine is below 700, husband is above 700.
  • November 03 2013
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It would be worth looking at option of seeing if a refinance with additional principal reduction and appreciation would result in 20% equity. I am assuming your MIP is 1.15% monthly so even if you increased your rate to 4% there would be a savings. Plus the higher interest would be tax deductible and MIP is not.
There are good Zillow lenders from your area on this forum, so contact one to run calculations for you. Tim Sutherland from Sun Trust would be a good option.
  • November 03 2013
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The OP doesn't seem confused at all :). On important consideration is if this is a Jumbo loan, what is the current loan balance? Estimated value based on sales around you? How good is your credit?

" MIP is what is on FHA loans with less than 20% down. "

@ Tim/Rachel,  there is MIP on all FHA loans, even with a 90% down payment.
  • November 03 2013
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Profile picture for Outer Banks N C
MIP is what is on FHA loans with less than 20% down.

PMI is what is added to conventional loans with less than 20% down so I think are confused about the added insurances being added to loans with less than 20% down.

PMI = private mortgage insurance and MIP is mortgage insurance premium

Any loan, unless a VA or special loan, with less than 20% down will carry an added extra insurance premium, so you might want to wait until you can refi with 20% down.

 
  • November 03 2013
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