Mortgage refi

[moneymaker]

Ok so we’re in the process of refi’ing and there is a second mortgage taken out 2 1/2 years ago. Will we have to pay the second off in order to refi the first? The reason I ask is that there is an early termination fee if paid off in the first 3 years, so I would rather wait 6 months in order to avoid the fee but at the same time have a lock that is pretty good and don’t want to wait to refi the first. Can’t lay my hands on the docs right now just wanted an opinion as have never been in this situation before.

[HLS]

How far along in the process are you that your nice loan people haven’t discussed this with you yet ?

Before they locked your pricing, they should have asked if you had a 2nd lien/HELOC/Home Equity Loan OR Solar lien.

Depending on how much equity you have, it may or may not affect your pricing.
Paying off a 2nd lien is considered a cash out refinance.
Early termination fee is usually $300

You have some choices:
1) A subordination so your 2nd stays in 2nd place and your new 1st replaces your existing 1st. Usually costs about $250 and takes several weeks.
Exact guidelines to follow. Depends on how much equity you have as to whether it will affect your loan pricing OR if it can be done at all

2) Pay off the 2nd with a cash out refi. Loan pricing could change (worse) depending on your equity. Pay early term. fee

3) pay the 2nd off with your cash. Close line. Pay early term. fee
OR
Pay off with your cash and leave line open.

Regardless of the current amount of your HELOC, there is a 2nd recorded for the maximum amount of your HELOC.
With some lenders this could present a problem.

[moneymaker]

If I take option 3b and leave the line open does that mean no early termination fee? If that is the case then I’m good and was worrying over nothing.

[Coronita]

[quote=moneymaker]If I take option 3b and leave the line open does that mean no early termination fee? If that is the case then I’m good and was worrying over nothing.[/quote]

Situations probably differ, but I can share my experience.

Back when I refinanced me primary, I had a $200k HELOC open that had no balance. My loan broker explained to me early on that that second line *might* make it more difficult for me to refinance. I think the issue was that even if I didn’t have any outstanding balance on it, because the credit line stays open, I could use it anytime. That was the concern from the lender. I was advised if I don’t plan on using it, I should close it to make things easier. But I wanted to keep it open, just in case (like using it as a bridge loan for rental property purchases that situation required cash, and then cash out refinance later after I closed and paying off the HELOC balance). So I just went through with it still open.

It did delay closing my loan for about 3 weeks longer than I anticipated. But in the end, my loan was approved. But I think that was because of a combination of my loan balance being relatively small versus my property value and my W2 income and my lack of debt elsewhere.

My details was.
1. Refinancing $350k from a 15 year conforming to a 15 year conforming.

2. LTV was 35-37%

3. HELOC credit line was $200k at 4% (Prime minus 0.25% with a floor at 3% and a ceiling at 8%) with no balance.

4. I think there were some addition negative factors from having a couple of rentals that were too new and couldn’t be used to count towards income.

5. My W2 income was stable for the past 6 years at the previous employer.

I still have my HELOC line open, BTW.

Question. Is your second a HELOC? You didn’t mention HELOC, so I didn’t think it was a HELOC.

[HLS]

FLU,
Your 5 details are the epitome of anecdotal evidence and completely meaningless.
Not one of your 5 points meant anything regarding your HELOC
subordination approval, which is the thread topic.

He didn’t have to mention HELOC. I’m 99.5% sure it’s a HELOC based on the details.

MM…. If the HELOC is left in 2nd position, it’s going to require a subordination whether it is at zero, maxed out or any balance in between. It’s probably going to cost $250 to subordinate.
Another recent issue recently is Solar lien subordinations, which can also delay loan fundings.

If your loan originator isn’t on it from the beginning, it could delay your closing which could cost you even more money if you need to pay for a lock extension at the end.(In addition to sub. fee)
In FLU’s example, extending a $350K loan for 3 weeks could cost $1400 with some lenders.
It should not take that long if addressed from the beginning.

Different lenders can have different policies about open available line on HELOCS. There was a time that you were better off having your line maxed out VS. having no balance drawn; because the payment factor was lower.
It may still be true with some lenders.

Believing that a loan was approved solely because of low LTV, W2 income & lack of debt is completely missing the point.
Your loan was approved, because it was approved based on guidelines. You didn’t get ANY extra credit for things that you point out.

Self employed people with a 680 credit score and lots of debt can get approved for 97% LTV loans.

Loans are approved on income & expenses.
They are priced on a combination of credit score & equity.

Lots & lots of people get approved with 3% equity.
Lots of people with 800+ credit scores and 50% equity get turned down, even if they have $1 million dollars in the bank.

Although W2 income without bonus, commission or overtime is easier to figure, those with other sources of income qualify also.
You don’t get extra credit with W2 income.
Being on a job for 6 years or 20 years means nothing extra to an approval. If 30 or 60 days income is needed, you get no extra credit for 6 years.
If a 740 credit score is needed for best pricing, you get no extra credit for 800 or 830.
2 months bank statements are generally required.
You get no extra credit for providing 12 months bank statements.
60% LTV is best pricing, it isn’t any easier to get an approval with 35% equity.

Getting loan approvals can involve 100 pieces of a puzzle all coming together, 80% of which the borrower isn’t even aware of.
If there’s only 99 pieces available, the loan gets denied.

There are people with $1,000,000 homes with an 800 credit score, $1M in the bank and no mortgage who don’t qualify for a $200,000 refi loan.

The govt regulations have made getting a loan denial a humbling experience. I chuckle every someone tells me that they will have ‘no problem’ getting approved for a loan.

[Coronita]

[quote=HLS]FLU,
Your 5 details are the epitome of anecdotal evidence and completely meaningless.
Not one of your 5 points meant anything regarding your HELOC
subordination approval, which is the thread topic.

He didn’t have to mention HELOC. I’m 99.5% sure it’s a HELOC based on the details.

MM…. If the HELOC is left in 2nd position, it’s going to require a subordination whether it is at zero, maxed out or any balance in between. It’s probably going to cost $250 to subordinate.
Another recent issue recently is Solar lien subordinations, which can also delay loan fundings.

If your loan originator isn’t on it from the beginning, it could delay your closing which could cost you even more money if you need to pay for a lock extension at the end.(In addition to sub. fee)
In FLU’s example, extending a $350K loan for 3 weeks could cost $1400 with some lenders.
It should not take that long if addressed from the beginning.

Different lenders can have different policies about open available line on HELOCS. There was a time that you were better off having your line maxed out VS. having no balance drawn; because the payment factor was lower.
It may still be true with some lenders.

Believing that a loan was approved solely because of low LTV, W2 income & lack of debt is completely missing the point.
Your loan was approved, because it was approved based on guidelines. You didn’t get ANY extra credit for things that you point out.

Self employed people with a 680 credit score and lots of debt can get approved for 97% LTV loans.

Loans are approved on income & expenses.
They are priced on a combination of credit score & equity.

Lots & lots of people get approved with 3% equity.
Lots of people with 800+ credit scores and 50% equity get turned down, even if they have $1 million dollars in the bank.

Although W2 income without bonus, commission or overtime is easier to figure, those with other sources of income qualify also.
You don’t get extra credit with W2 income.
Being on a job for 6 years or 20 years means nothing extra to an approval. If 30 or 60 days income is needed, you get no extra credit for 6 years.
If a 740 credit score is needed for best pricing, you get no extra credit for 800 or 830.
2 months bank statements are generally required.
You get no extra credit for providing 12 months bank statements.
60% LTV is best pricing, it isn’t any easier to get an approval with 35% equity.

Getting loan approvals can involve 100 pieces of a puzzle all coming together, 80% of which the borrower isn’t even aware of.
If there’s only 99 pieces available, the loan gets denied.

There are people with $1,000,000 homes with an 800 credit score, $1M in the bank and no mortgage who don’t qualify for a $200,000 refi loan.

The govt regulations have made getting a loan denial a humbling experience. I chuckle every someone tells me that they will have ‘no problem’ getting approved for a loan.[/quote]

fair enough…i stand corrected. I’m out/

[bearishgurl]

[quote=HLS] . . .

He didn’t have to mention HELOC. I’m 99.5% sure it’s a HELOC based on the details.

MM…. If the HELOC is left in 2nd position, it’s going to require a subordination whether it is at zero, maxed out or any balance in between. It’s probably going to cost $250 to subordinate.
Another recent issue recently is Solar lien subordinations, which can also delay loan fundings. . . .

Self employed people with a 680 credit score and lots of debt can get approved for 97% LTV loans.

Loans are approved on income & expenses.
They are priced on a combination of credit score & equity.

Lots & lots of people get approved with 3% equity.
Lots of people with 800+ credit scores and 50% equity get turned down, even if they have $1 million dollars in the bank. . . .

There are people with $1,000,000 homes with an 800 credit score, $1M in the bank and no mortgage who don’t qualify for a $200,000 refi loan . . . .[/quote]
HLS, I glanced at the OP when there were no responses to it on Friday and my first thought was that he would be required to subordinate, regardless of the balance (or no balance) on his HELOC. I’ve seen this scenario played out dozens of times and I have never been a loan officer or broker. I didn’t have time to respond at the time but you responded in much more infinite detail than I could ever explain it. Thanks for reiterating the nonsensical gubment lending regulations arising out of the “mortgage crisis” of the aughts. Now that there are few to zero “portfolio lenders” to choose from, stupid reigns over common sense. Stupid is as stupid does but it’s “good enough for gubment work.”

Yeah, everything you posted here about high-asset, “low-income” individuals (even those with stellar credit) not being able to qualify for a small (“conforming,” in gubmentese) mortgage is now true since virtually *all* mortgages offered today are gubment-backed in some fashion. Of course, these high-asset people can always pay cash for a RE purchase. I actually know people who fit your description of owning a residence (free and clear) worth >$1M with a 740+ credit score and plenty of other assets (both liquid and illiquid) who cannot qualify for even a $150K mortgage today!

Instead, they get mailers every week advertising (usurious) “reverse mortgages” . . . LOL.

Our gubment’s nuevo-“organized” secondary mortgage markets have now decided they will “categorize” potential borrowers into meaningless little groups solely based upon their current income (but not taking into account their YUGE monthly childcare expenses, for example) in calculating their back-end ratios for a mortgage. Their ridiculous underwriting methods contribute to financial suicide for young families … especially those who are buying with FHA/VA or 95% conventional mortgages with hefty up-front and/or monthly MIP/PMI premiums or an up-front (100% financed) VA funding fee and thus are underwater the day after escrow closes.

In recent years, the NAR has been pushing the Obama Administration relentlessly to increase homeownership among the masses when the masses actually have no business being homeowners. And it has worked. Witness the sheer amount of recent homeowners who can’t afford their water bills or to repair their broken down vehicles parked on the street just months after purchasing their first homes. And this is in areas where no MR/HOA exists!

It’s unconscionable.

[spdrun]

Fortunately, it has NOT worked very well so far. The last read on the homeownership rate in the US was 62.9%, lowest in 50 years.

Hope this continues — a lot of people aren’t cut out to own homes.

[moneymaker]

Yes the second is a HELOC, it was to purchase solar, so if it costs $250 to subordinate or $500 for ETF I guess the difference is kinda small. I was hoping to not have to pay anything like most people. I guess if I don’t like the final mortgage contract I can spin the interest rate wheel and hope we go down even more. Thanks all for your input, it is stuff like this that needs to be taught to our high school kids before they graduate. I don’t regret buying solar or refinancing twice but I’ll have to admit I didn’t see this coming, who knows it may not be a problem at all. By the way HLS the loan people have not brought it up but we all know how they like to spring things on us at last minute, we have been conditionally approved and are at the underwriting/funding stage.

[ucodegen]

[quote=bearishgurl] I actually know people who fit your description of owning a residence (free and clear) worth >$1M with a 740+ credit score and plenty of other assets (both liquid and illiquid) who cannot qualify for even a $150K mortgage today![/quote]

I have seen the same. With $1M in the bank/or liquid investments, it ignores that the person is probably making more than $100k/yr in sweet passive income {blast from the past used often by someone initialed CS} from that $1M. It also ignores that for someone to build up that type of asset, they also demonstrate true responsibility with money, debt, credit, and assets.

I recently had an argument with someone who claimed that they know more about credit than I simply because they have more credit cards, used them more often and carried more ‘credit’. Oy vey.

[ucodegen]

[quote=moneymaker]Yes the second is a HELOC, it was to purchase solar, so if it costs $250 to subordinate or $500 for ETF I guess the difference is kinda small. I was hoping to not have to pay anything like most people. I guess if I don’t like the final mortgage contract I can spin the interest rate wheel and hope we go down even more. Thanks all for your input, it is stuff like this that needs to be taught to our high school kids before they graduate. I don’t regret buying solar or refinancing twice but I’ll have to admit I didn’t see this coming, who knows it may not be a problem at all. By the way HLS the loan people have not brought it up but we all know how they like to spring things on us at last minute, we have been conditionally approved and are at the underwriting/funding stage.[/quote]
One thing to also consider:

[FlyerInHi]

[quote=HLS]

There are people with $1,000,000 homes with an 800 credit score, $1M in the bank and no mortgage who don’t qualify for a $200,000 refi loan.

The govt regulations have made getting a loan denial a humbling experience. I chuckle every someone tells me that they will have ‘no problem’ getting approved for a loan.[/quote]

Can you please explain how “govt regulations have made getting a loan denial a humbling experience.” Or is it that private lenders have their arbitrary guidelines?

I don’t understand why some people feel upset about being denied. These are private contracts, and outside of discrimination, denial is the prerogative of the lender. Why should someone with lots of cash in the bank be entitled to a mortgage?

[HLS]

[quote=moneymaker]Yes the second is a HELOC, it was to purchase solar, so if it costs $250 to subordinate or $500 for ETF I guess the difference is kinda small. I was hoping to not have to pay anything like most people. I guess if I don’t like the final mortgage contract I can spin the interest rate wheel and hope we go down even more. Thanks all for your input, it is stuff like this that needs to be taught to our high school kids before they graduate. I don’t regret buying solar or refinancing twice but I’ll have to admit I didn’t see this coming, who knows it may not be a problem at all. By the way HLS the loan people have not brought it up but we all know how they like to spring things on us at last minute, we have been conditionally approved and are at the underwriting/funding stage.[/quote]

I don’t make a habit of ‘springing things on people at the last minute’ I ask before I lock a loan if they have a 2nd, HELOC or solar lien. I don’t like surprises any more than anyone else.
It could affect the accurate pricing and /or ability to qualify for a loan.

A subordination will normally not cause a problem; just a cost and time to get approved. Cash out to pay it off can cost a whole lot of money in the long run due to a higher rate.

Why would anyone ever regret refinancing ?? (if it was to a lower rate at no cost) Conditional (initial) approvals are the easy basic part, it could still be 2-3 weeks to get to the funding stage.
(Underwriting & funding are not the same thing) How long has it been since you locked your pricing ?

I don’t care who you are dealing with but it sounds like you are hoping your HELOC is just not a big deal and they’re going to let it slide. I’d love to hear more about the progress of your refi, if you care to share. Something just doesn’t sound right.

You are correct that you are under no obligation to sign the loan docs if you aren’t happy for ANY reason. No explanation is required.

[HLS]

[quote=ucodegen]
One thing to also consider:

What is the penalty on the second?

What is the interest rate on the second?

How big is the second?
Generally (not always) a cash-out refi boosts the interest rate you are paying up 0.5%. Run the numbers with the cash out vs subordination and see which results in lower total costs.

If the second has a significantly higher interest rate than the first and combining still keeps you out of PMI(if you currently are out of PMI) – it might actually benefit to combine and take the hit on the new first’s interest rate – you got to run the numbers for both to know. I don’t have enough info of your situation to do that.

NOTE: An increase in interest is not quite as bad as most people think. Remember that mortgage interest is tax deductible. To get the real ‘effective’ rate on your disposable income, use your marginal tax rate (amount that each additional $ of income increases your tax). So, if you are in the 30% total (fed and state) marginal tax bracket, real interest rate increase would be 0.005 * (1 – 0.30) = 0.0035, or 0.35%.[/quote]

I could not disagree with you more.
*****Your (mis)information is dangerous.

Cash out generally does NOT increase your rate .50%
A subordination of a HELOC is almost always a far better choice.
Who is talking about PMI ?

Penalty to close HELOCS are usually $300, only in the first 3 years.
Interest rates on HELOCS is usually not more than prime rate
currently 3.50%
Most people who have HELOCS, have them for relatively low amounts.

Increase in interest rate is WORSE than most people think.
Are you a CPA ?
You are still paying the interest. Who cares how much of it is
tax deductible. For every extra dollar you pay and save 30c, aren’t you still paying 70c ?

When your rate goes up for cash out, you aren’t only paying the higher rate on the cash out portion, the higher rate is on the entire loan amount. .25% over 30 years is a lot of money.

Do you understand the standard deduction ?
For a couple with $12,600 standard deduction, the first $12,600 of Interest/Property taxes is a wash.
With current low interest rates and old property tax base, many couples (filing jointly) are better off with the standard deduction.
Their mortgage interest is a complete waste of money as it’s NOT tax deductible when taking the standard deduction.

In many parts of the country, interest + property taxes is nowhere near $12,600

2 huge myths that get repeated (Not only by ignorant Realtors):
a) Rent is throwing money away
b) You should buy a house to get the tax deduction
***************************************
a) No it’s not
b) You should get tax advice from a qualified tax adviser

*Everyone’s situation is different; there are always exceptions.

[HLS]

[quote=FlyerInHi][quote=HLS]

There are people with $1,000,000 homes with an 800 credit score, $1M in the bank and no mortgage who don’t qualify for a $200,000 refi loan.

The govt regulations have made getting a loan denial a humbling experience. I chuckle every someone tells me that they will have ‘no problem’ getting approved for a loan.[/quote]

Can you please explain how “govt regulations have made getting a loan denial a humbling experience.” Or is it that private lenders have their arbitrary guidelines?

I don’t understand why some people feel upset about being denied. These are private contracts, and outside of discrimination, denial is the prerogative of the lender. Why should someone with lots of cash in the bank be entitled to a mortgage?[/quote]

Private lenders can do whatever they want(and they do)
They charge 3-5 points up front and 8%-12% interest rates.

FNMA/FREDDIE MAC approvals are the same through every broker, bank or direct lender; (These are govt regulations) although some have additional overlays.
If you want the low govt backed rates you need to fit in a box perfectly.

Onky when you understand that someone with a net worth of $2m-$3m, 800 credit score, 6 figure liquid assets/cash in the bank, 5 figure monthly cash flow and very little monthly debt cannot qualify for a $200,000 loan on a $600,000+ house
YET
a salaried employee with 3% down payment (that was a gift)
negative net worth, a 680 credit score, and no other assets can qualify for a 97% purchase loan can you grasp what a humbling experience is.

[Author]

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