San Diego Housing Market News and Analysis

Why do you want to refinance so soon, Mark? Did you remodel and re-landscape it sufficiently so as to appraise for enough to get you out of the (FHA) MIP??

1. When dealing with a refi of a purchase loan, speak to your tax advisor or a QUALIFIED party to explain recourse debt vs. non recourse debt and YOU decide whether this is a concern for you.

2. If recourse debt is not a concern, if you can qualify to refinance and save .25% or more on your rate, (which you should be able to do from 4.25%) at zero cost to you, there is absolutely no reason to not refinance.** Sadly, many people do not get this**

3. With an FHA loan, I assume that you had a very small down payment (3.50%?) Make sure that you compare your MIP (mortg ins) payment on the new loan to your existing payment.

Your payment should drop about least $125 a month.
Assuming that you still qualify, you should be able to get <3.75% at zero cost.

There is no such thing as an easy loan today, but it should be easier than your purchase loan.

Is a broker recommended / needed for a refi?

I'd personally recommend a broker over a bank. Last time I shopped around both my bank and a credit union didn't offer very good rates and had exceptionally bad service (lost paperwork repeatedly, didn't return phone calls etc.).

Is the process of a refi easier than the original mortgage process?

for me it was exactly the same. Although, this time I knew what I was expecting.

The loans I got had a little clause agains refinancing again within 6 months of issuance. You might want to double check the terms of your loan before you get too far along.

If you are getting a 15/30yr fixed loan that is FNMA/Freddie/FHA in most cases BANKS ARE MORTGAGE BROKERS. It's a division of the bank just like a credit card division.
Many think that bank have lower rates which may or may not be true. They usually don't.

Credit unions can do whatever they want and make their own rules if lending their own money for 30 years.

A good broker will get you very competitive pricing. Pricing changes almost every day.
There are some bad brokers out there.
Nobody can tell you that they always have the lowest pricing.

A refi loan is NOT exactly the same as a purchase loan, it should be slightly easier.

'Direct lenders'(which includes banks) can deceive you and get away with it, It is not possible for brokers to do this.

If you only care about price, you may find an internet lender someplace far away with lower pricing and you can take your chances if you wish.
It usually isn't that much better.

Hi Mark! My husband and I closed last November with a 30 year fixed FHA at 4.125%. We are in the process of refinancing through Quicken Loans (they are the largest online mortgage lender and came highly recommended) with a 30 year fixed at 3.5%. We are getting a "streamline" refi, which is much simpler compared to other loans. We do not need to get an appraisal.

We owe $319,000 on the home right now and after they roll the cost of the refi into our mortgage our new balance will be $323,000. We will need to bring $1,600 to closing, and they will time our closing right before our existing mortgage payment is due so we do not have to pay it. Then, we will receive $2000 back after escrow closes.

Best of luck to you!

You are not getting a no cost loan, you are adding
$4000+ to your balance.

Did they explain where the $2000 is coming from ?
Why do you need to bring in $1600 if you are going to get $2000 back?

Yes, I understand that it is not a no cost loan. That is what I was trying to convey when I shared what our mortgage balance is now and what it will increase to after the refi. We will be adding $4000 to our balance with 3.5% interest over 30 years. It doesn't sound great, but on paper it works in our favor. Not by a ton, but some is better than none.

As far as I understand, the $2000 is a refund from our existing escrow account that will be due to us within 30 days after closing.

lp, will the "refund" be due to your property being reassessed downward by the assessor or due to elimination of MIP and thus the advanced MIP premiums you had sitting in the impound acct of your previous FHA loan?

If you will actually be getting rid of your FHA MIP's, then this (conv?) refi so soon after you purchased is probably worth it, IMHO.

Thanks lpjohnso - that sounds like it may be our best bet - a streamline loan, while we can't do it for a couple months still (they require a minimum of 6 months since closing) may be perfect.

And thanks to everyone else for the advice as well!

That is our hope - we're eager to get rid of the MIP, and if we can get a lower interest rate as well, we could cut our payment by over $500 a month. That would be really nice.

I'm troubled by the misinformation being thrown around here.

You will NOT get rid of MIP with a FHA refi, streamline or not.

FHA is a loan for those with either a very low down payment and/or crappy credit. You will always have MIP with a new FHA loan, and it isn't going away for a long time, regardless of equity.
It is comparable to assigned risk auto insurance.
Possibly a product for those who are desperate OR do not understand other options.

If you have great credit AND at least 5% down for a purchase (or at least 5% equity for a refi) AND a loan amount below $417,000 a FHA loan may not be your best option.

It seems that many people who can qualify for a better loan, end up with FHA at the urging of their mortgage 'friends' or bad advice on a blog.

Lpj, have you been told what your NEW MIP payment is going to be ?
I fully understand the benefit of lowering your rate to 3.50%, but I'm troubled by your $3600 net cost +/- and how much it is going to actually lower your total payment (AND extend your loan)

Will your house appraise for more than $336,000 now? Are your mid credit scores above 740 ?

When is your loan scheduled to close and what is your exact current principal balance ?
Above or below $319K ?
*****************************************
Mark, Do you have 5% equity (or more) AND mid credit scores above 740 ?
They can restrict you from doing a Streamline for 6 months but they cannot restrict you from paying it off if you find a better loan.

HLS, I wasn't thinking Mark was trying to get another FHA loan. I figured he may have spent the last few mos cleaning and fixing so he could possibly obtain an appraisal high enough to get OUT of his FHA purchase money (pm) mtg.

btw, you bring up a good point about subsequent mortgages (taken out after his pm mtg) being "recourse" and I agree that it is important for the borrower to understand that the lender of his refi mtg (even if for the same or lower amt than his pm mtg) could later come after him for the difference between what they could net in an REO sale and how much his delinquent loan balance was (in the event of foreclosure) vs whatever their pm lender could recover from an REO sale would have to satisfy them.

I don't think too many borrowers really pay attn to this.

Ok I've heard about the entire recourse thing.
Can someone please give me an example (real court case) that a lender did go after the borrower....

It's very unlikely that anybody with an FHA loan can increase the value of their property by 21% in 3 months. Possible perhaps, but highly unlikely.

Recourse debt is PROBABLY not going to be an issue for most people, but they should be aware of what it is and get advice from someone.

Unfortunately many people who have borrowed hundreds of thousands of dollars are very confused
about their situations and have received horrible advice about what to do about their situations.

In some cases it's a personal choice, but in many cases it's a no brainer to refi but they are paralyzed by fear,confusion,and/or greed.

With FHA loans it is possible that MIP payments will go up, making a refi less attractive, even at a lower interest rate.

I believe FHA is a problem, not a solution.

You're welcome, Mark!

HLS, our MIP payment will increase from $302 to $315. The refi will be lowering our loan by about $27/mo. However, it will actually lower it more because Quicken brought to my attention that are not paying enough taxes on our current mortgage. I called Wells Fargo, our current lender and they confirmed that was true. They said we will owe around $900 in October and then they will correct (i.e.-increase) our current mortgage payment. The refi will immediately correct the tax issue (of course, we will still have to owe Wells Fargo $900), and in the process our current mortgage payment will go down $27/mo, not increase even higher than it is now in order to correct the taxes that were initially miscalculated in escrow.

Recent comps would support that our house could appraise for about $370,000. We remodeled it and now it has maple floors throughout, 5" baseboards, granite countertops, etc., etc. Unfortunately, we decided to do the entire $40,000+ remodel on our credit cards. They are low interest, but still, none-the-less, a terrible decision, but we knew that when we did it. We are claiming '0' on our taxes, so we are on the 5 year plan to pay the cards off with each tax refund (last year's refund was $10,000). Due to charging all of our cards up to the top, our credit has taken a massive hit, going from the high 700s, down to the low 700s/high 600s. Honestly, we did't care because our house is exactly how we want it and we never plan on leaving, but now I am caring because it matters for the refi.

We do not have a date to close yet, but Quicken said it usually takes 3-4 weeks and we started it last week. Our exact current principle balance is $318,696.86.

I would have loved to get a conventional loan to get rid of that damn MIP payment, but we only had 3.5% down.

LPJ..
1. According to your figures you have plenty of equity to consider a NON FHA loan (and possibly a better loan) You will still need mortg ins without 20% equity, but you will not have the FHA funding fee with a conventional loan AND the possibility of mortg ins being removed sooner than with an FHA loan.

2. Was your first payment in Dec or January ?
Your taxes/insurance portion of your payment are what they are. Don't let this confuse your payment analysis.

3. You will still be making your August payment which will reduce your loan balance even further, closer to $318K and cost you another $2000+/- out of pocket before this new loan closes next month.

4. By starting over with a new 30yr loan, you will be adding at least 9 payments of $1450 (P&I) that you no longer have on your existing loan.
If you only compare monthly payment savings,it's $13,000 more in payments than the loan you have now,did you consider this vs.your savings ?

My point is that the benefit of a Streamline might be no appraisal, but for a $385 appraisal fee, if you have the equity that you say you have you may have another option to consider, at a lower cost.

You are definitely going to be better off in a lower rate and you may decide to stick with FHA, but did you get a comparison of rate, cost and mortg ins payment ???

Yes, HLS, the already-exorbitant FHA MIP just went up this past April 1 and it very well could go up again, since these loans are losing more money every month that goes by.

http://www.ncpa.org/sub/dpd/index.php?Ar...

I predict the program will be insolvent within two years from today as there is not enough of an insurance "cushion" combined on all the recent high-ceiling loans they made in recent years.

FHA IS the problem. The officials running the program are rock-dumb. In the last decade its ceiling has exploded into levels sufficient to buy a "luxury home" in SD County with a 3.5% downpayment! This is NOT what the FHA 203b program was put in place for! Its lending limit should be no higher than $300K in SD County and that is really pushing it. The program was orginally put in place in 1934 to give first-time and/or moderate income buyers a "leg up" in a home purchase for a principal residence. Here are some examples of properties (and the homebuyers who will purchase them) for which the program was intended to serve:

http://www.sdlookup.com/MLS-110058443-27...

http://www.sdlookup.com/MLS-110067477-26...

http://www.sdlookup.com/MLS-120007011-16...

http://www.sdlookup.com/MLS-120016884-13...

http://www.sdlookup.com/MLS-110048073-59...

http://www.sdlookup.com/MLS-110066308-49...

PS: For your situation, the lowest borrower's mid credit score (680-699, 700-719, 720-739)is crucial to pricing a NON FHA loan, as well as whether you have 10-14% equity OR 15-19% equity.

If mid credit score is below 680, FHA may in fact be your best option.

By planning in advance, it is possible to only use credit cards in the name of one spouse and possibly qualify for a loan with the other spouse's income & credit.
Joint debt can be very hurtful, as in cases like this.

People can still be on the deed to a property without being obligated on the loan.

I would suggest raising your exemptions and getting more money in every paycheck and pay down credit cards as quickly as possible. Forget about the $10K check once a year.

I see no benefit to loaning the govt your money at 0% while you are paying daily interest on your credit cards. It is really silly to wait until next year to get a big check.

Did you max out credit cards with low rates for the life of the balance... Does the low rate apply for 4-5 years ?
You may have a way out of this sooner than you think.

Very good advice, HLS.

FLU
Recourse loans are out of the picture now and only dinosaurs still worry about them. A first was never effectively a recourse loan whether it was purchase money or refi'd. CA has a one action law in non-judicial forecloses so if the lender forecloses (and it's always the first as the second would not foreclose unless the 1st could be paid off in full). Recently the law changed and a refi'd 2nd is no longer subject to recourse unless there was cash out over and above loan fees or costs. Even then the recourse is only for the incremental cash out.

Perhaps our resident unemployed paralegal can dredge up some outdated cases in her copious spare time?

Is it prudent to tell someone not to worry about recourse debt at all OR is it better to let them know that it could be a problem and come to their own conclusion ?

To me, there is a difference between a situation that absolutely, definitely will not be a problem at all AND possibly being a problem, regardless of how unlikely that is.

Although I'm not aware of anybody who has ever had a problem with recourse debt, I'm not prepared to tell someone that it could never happen to them.

HLS
I am not an attorney nor do I have an agency relationship here. When dealing with clients we give them the actual laws. Folks around here often provide outdated information and fearmonger. The idea of a recourse mortgage is a very small risk for most in CA. Telling people not to refi a first mortgage because it would become recourse debt when they can get much better rates and terms is bad advice. The real danger was always in refined 2nds. With the new law that real danger is limited to the cash out portion over and above loan costs/fees that were built in the new loan. Spreading fear about risks that are minimal does not serve the general population. It's like telling people not to leave their homes when the weather report calls for lightening in SD County