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Should we sell and cut our losses

Hi- Hopefully someone familiar with the Seattle (Greenwood) market can help me out with this one.

We are in a tough situation. We bought a home for 325,000 in Feb of 08' with 3% down. We were (naieve) first time home buyers and had the wool thrown over our eyes and now we have a PMI of just under $500 per month. I would like to do an FHA refinance but our loan to value has shrunk so I don't think that is possible but we need to get rid of this outrageous PMI. Part of me thinks that the only way to get rid of the PMI is to sell and cut our losses as I know the house will not appreciate any time soon. We might be able to get just the amount we owe on it.

Any help or advice would be appreciated.
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January 05 2009 - Greenwood
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Do you have any savings that you may be abel to use to paydown the mortgage a little bit so that you can fit into an FHA loan.  That is a pretty hefty PMI figure.  Is your credit and income okay.
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January 05 2009
Profile picture for wetdawgs
That is a difficult question.  Think through the following:

Are you happy living where you are?   (Greenwood has some great houses).  

Are you needing to relocate geographically soon or is it possible you will be in the house for another 10 or more years?

In the Seattle area, in city houses are declining less than out in the 'burbs.

If you chose to sell now to "cut your losses", you will have to pay a commission of ~ 6%.   If you sold for the same amount you paid for it (which is not likely), you will immediately be down 6% because of the commission.  

Therefore, my humble opinion is that unless you are planning to relocate out of the city/metro area sometime in the next few years, I'd hang tight.  


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January 05 2009
Wet dawgs makes an excellent point about selling the place.  You will definetly be coming out of pocket with some serious money for the realtor. 

I did some quick math and FHA maybe a possibility.  On a refinance, you are allowed to go up to 97.75% LTV.  That would give you .75% of a buffer in case your value dropped plus the $3000 of principle that you paid down.  Currently rates are at 5%, 0 points (providing credit and income check out).  If you can come out of pocket with the closing costs then you could save probably save yourself $500 per month.  If you can not pay the closing costs then at 5.5% and even more at 6.0% the lender can give you a credit to cover a majority if no all the closing costs.  You would still have a $300 savings at 6.0%.  Whatever you do, do not go back to the same guy as before.  He did you no favors putting you into that loan.  Wish I could help you out but I am not liscensed in WA.  Post a request on Zillow.  Some lenders should jump on with their offers and if you want come back here post the request ID and we can help you wade through the offers. 
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January 05 2009
Wow, thanks for the response everyone. I guess selling is not the best option at this time and it looks like we might need to buy down the mortgage if I am understanding most of you correctly.

My next questions is about apprasiers. I know that it costs money to have an appraiser come out and appraise your house but will different appraisers appraise homes at significatly different prices (>1%)? Is it worth it to get a few apprasials done and go with the best one if it would qualify us for a refinance?

Thanks again everyone- you have no idea how nice it is to get some clarity!
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January 05 2009
You would think that all appraisals should be the same.  Each one is going to run you $350 -$400.  If you align yourself with a knowledgeable FHA lender in the area, he/she should be able to give you a pretty good idea of the value by reaching out to appraisers they have used in the past.  It is not 100% reliable but should give you some piece of mind gonig into the process.  Also be wary of any lenders looking for more than the cost of the appraisal up front.
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January 05 2009
Oh and definetly keep away from people who just jump on these threads to promote themselves for business (like the guy above)

Stephen...NO SPAM.
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January 05 2009
The advice about W9 is what I would look into.  Many first time buyers do not realize the impact of mortgage interest and PMI deductions when it comes time to file returns.  Since this will be your first tax return as homeowner, you might find that you will get a large amount back.

If this does happen, you can adjust the exemptions on your paychecks to get less money withheld from each pay period allowing for a more comfortable monthly budget and plan so that you break even when you file your 09 return.

Hopefully you have a good CPA that can help you with your projections. 
If you recently purchased with only 3% down, refinancing is going to be a struggle for sure.
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January 05 2009
Your MI seems very high. Because 97% CONV loans were allowed (and still are according to an MI company's site (PMI to be exact), the MI coverage should be .92% of your loan amount annually (for 35% lender coverage).  or $250/month +/- crumbs.  The only reason your MI should or could be higher is for a higher risk to the MI company.. that is another story and is a private matter.  FHA might be your answer and you received other pieces of advice, but FHA also has its own version of mortgage insurance as well.  There is no free lunch without a large down payment of piles of equity unfortunately.  I wish I had better news, but it is reality.  Happy New Year and Good Luck.
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January 05 2009
Ali, it's only a loss if you sell. If you now owe more than your house is worth you won't be able to refinance without  coming in with some money. I'm assumming your home is now worth around $260.000. Got a phone call i'll get back to you!
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January 05 2009
Thanks again for all of your replies- As for why our PMI is so high part of the reason we were told is that when we were originally pre-approved in early Jan. the lending standards were looser but as of 'Feb. 1st' they tightened and the PMI companies were no longer insuring 3% LTV and there was only one out of the seven companies WaMu dealt with that would still do 3%LTV so the ball was in their court and they could essentially charge as much as they wanted. Or at least that is what we were told. We were never informed about FHA loans and 'surprisingly' WaMu does not do FHA loans... hmmm...

Anyway- I have heard of the tax deduction for 2008 but I also heard through the grapevine that this deduction is limited to this year and will not continue into 2009. Does anyone know this for sure?
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January 05 2009
Profile picture for wetdawgs
You asked a question about appraisals and different appraisals having different values and commented about >1%.

Once I was in a situation where i had to have 3 appraisals.  The difference between the top and bottom appraisal was 24%.  (the third was right in the middle).  I suspect 1% difference is almost guaranteed.

Please note, if you are thinking of an appraisal to see if you now have >20% equity in the market to avoid PMI,  houses in the Seattle area have not appreciated enough for that increase in equity in less than a year.   Appraisers are being extremely conservative at the moment.    

I would talk with lenders (but not spammers) about refinancing as per the excellent advice given in this thread.  If they think it is a go, then an appraisal will be part of the process.  you don't need to go hire two or three appraisers on your own.

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January 05 2009

Wetdawgs- when I was asking about apprasials I didn't think we would have 20% appreciation by any means. What I am hoping for is that we still maintain 3% LTV as right now we are only at 4% LTV since we purchased the place in Feb. But, when we did buy it we bought it for $42,000 below the original asking price... if that says anything. (Probably doesn't)

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January 05 2009
Ali continued: if you can afford to take a loss selling ang if you love your home, you could use that money to buy down your loan balance on a new loan. You would still have PMI but at a lower payment. Good luck!
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January 05 2009

Hi Stephen-

This is Gracey from Zillow.

Please refrain from providing your contact details on your comments. The users can go to your profile page to view your information. Please abide by the Good Neighbor Policy (http://www.zillow.com/how ... olicy.htm) in the future.

Thanks for your understanding.

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January 05 2009
Hello Allison,

I am local and understand the Seattle market and FHA loans.  When do you and your husband have time to sit down so we can introduce ourselves and become better educated on your exact situation?

Stephen Ching
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January 06 2009
You have another option that nobody had brought up and that is a payment modification.  My company has been successfully completing payment modifications for people and getting some outstanding results.  This is NOT a refinance so you do not have to qualify and you do NOT have to be late or sell your home.  It also does NOT hurt your credit in any way.  Our team of attorneys negotiates with the legal department of your bank and has recently seen reduced interest rates, and even reductions of the balance.  The most recent scenario we just completed for one client was 0% for 6 months, 1% for 1.5 years, 2% for the 3rd year, and back to the original interest rate for the 4th year moving forward.  If this option intestes you contact me and we can take a look at your situation and see if we can help.
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January 06 2009
Alison - first of all let me say I am sorry that you are in this situation - this is an extremely tought thing and I think it is great that you have come here.  I have had two recent successful Greenwood sales and can definitely help you on the value stuff if you need it.  I also have a really good lender contact who is not only a nice guy, but very smart.  If you want to stay in your home and it sounds like you do then I am happy to pass along a name to help you - I really do hope things get better for you! 
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January 07 2009
Harley
 Quit the spamming dude. FYI: Investors are requiring a legit 'hardship' to even consider doing a loan mod. You just can't go in there and demand a loan mod because you are underwater. 
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January 07 2009
An FHA low cost refinance would reduce your MIP (PMI) $350, but would cost you about 5k in the up fornt mortgage insurance premium from your equity of out of pocket. At savings of $350 a month over 3 years being 12,600, this does seem like a value as long as your principal and interest payment stay close to where it is now. You also have an option, if you have the money, to pay down your principal balance to your current lender and ask them to remove the pmi (based on a new appraisal they will order). These suggestions are based on the fact that you do not plan on moving for a while (3 to 5 years).
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February 16 2009
 
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