Home Loans - Lawrence,KS

you shouldn't have to take out a loan for the exact same amount unless they're rolling in some pretty hefty closing costs (which is sadly pretty common. 'no closing costs' means 'hidden closing costs'. SOMEONE has to pay for that stuff.) can you drop an entire percentage point and/or go to bimonthly or a shorter overall term for the same payments? if so, then refi-ing may be worth it. if not, don't take out a loan that eats up what equity you've accumulated through the real estate crash.
khairete
S.

I have no idea on FHA mortgages, but we get calls ALL THE TIME to refinance. We have a VA and they keep telling us we can get lower. We are at 5% right now. What is your rate? Would the drop in rate make the payments more manageable? In my opinion, it only makes sense if you are still going to pay what the payment WAS and pay down your principal. We dropped our rate from 6 to 5, and dropped our payment by $200. We aslo were paying biweekly until my husband lost his job. But by doing it that way, we were paying almost an extra $3000 to our principal every year. HOWEVER, we screwed ourselves because they rolled two payments into our loan and I paid our January payment in December the year before, so we had basically "lost" three months of interest payments and it hit us at tax time. I'd think really hard before refinancing...make sure it is good in the long run, and a lot of times I really don't think it is.

There is soooo much to know about refinancing/purchasing. It is really difficult to give you good sounds advice without seeing the big picture. First I would suggest you try to use the same lender that you currently have, with the hopes that the closing fees wouldn't be so high, like working with a broker. I am hoping that the "additional" $6,000 is including ALL cost & are not just junk fees. You need to get a GFE (good faith estimate) when you review this see if the $6,000 is including: setting up new escrow for prop taxes, h.o. insur.....the other cost for FHA is an upfront MIP (mortgage insurance premium) which is similar to PMI on a conventional loan, if this MIP is one of the costs then it sounds like the $6,000 cc are in line. It is very difficult in our economic situation to get conventional loans (private mortgages) anymore, so FHA can be very beneficial as these are government loans.

I hope I made some sense for you. If you have any more questions feel free to PM me. Although I don't practice anymore, I have been a mortgage broker for almost 20 years.

One thing to ask the loan officer in advance, because they may not disclose this until you are signing off on it all, is about all the bureaucracy that goes along with an FHA loan. Because the government does not want to provide these loans to people who buy properties for the purpose of reselling them at a profit, there are a number of stipulations about what might be required for you to sell your home. These loans are only supposed to be provided for people who plan to live in the home. There may be requirements involved if you try to sell your home within 6 or even 12 years. So just make sure you understand what you are signing off on.

Keep in mind that, even with an FHA loan, you can always refinance again when the market is more favorable. Once you do that and the FHA loan is paid off, you will no longer be obliged to those stipulations and requirements. So, you might decide to take advantage of the benefits this refinance can provide you knowing that, if you decide to sell the home you might need to refinance again in order to free yourself of the FHA limitations. Just be sure to ask about all this before making the decision.

No matter how much lower the current resale value of your home is, you are still on the hook to pay off the original loan amount. You say your principal is $6,000 lower - so you've paid off $6,000 of your original loan amount. Most of the money you've paid up to this point has been interest, which is typical in mortgages.

Then it sounds like they are charging you $6,000 in closing costs and other fees. Refinancing always comes with some costs. The immediate benefit of refinancing is normally lower monthly payments, but long-term you may or may not be saving money.

They're definitely rolling in the loan costs and probably down payment of 3.5% to keep you from having to come out-of-pocket. Both of our kids have FHA loans, and at the time they got their loans, they went FHA because mortgage insurance on FHA loans was less per month than that on a conventional loan. (Mortgage insurance is insurance YOU pay to protect the lender in case you default. It's required on any mortgage where you are not putting at least 20% down.) FHA loans enable non-veterans with good credit to buy a home with a minimal down payment, which makes them a good deal if you want to buy a house. However, ANY mortgage where you put down very little is a risk when it comes time to sell. In the current market, if you had a zero down or minimal down mortgage, say 2 or 3 years ago, and you need to sell now, you would likely have to take a check with you to the closing to sell your home. THAT'S not a good deal.

You did not say how long ago you purchased your house. A lot would depend on this. I don't have any experience with FHA loans but we have refinanced twice. If FHA loans require you to have an escrow account, some of these funds may be the amount that you are required to have up front for escrow.

We recently refinanced with a cash out option for home improvements. The closing costs were about 1,200; A certain amount goes into the escrow as well. I think for us it was almost 1,800. That brought it to about $3,000. If your taxes and insurance are higher than mine, you might have a higher escrow deposit. If you choose to pay extra points to get your rate lower than that also gets added in there. Most of the time you are not only financiing what is left on the principal but you are also financing the closing costs, points, and escrow amount, as well. You don't have to roll that all in there and finance it. However, if you don't than you have to give them cash out of pocket. This will lower the amount that you are refinancing for. However, it will increase your cash out of pocket obligation.

In turn, if you still have funds remaining in your escrow account from your old lender you will get unspent money back. They are obligated to send you a form for you to complete. The two times that we have refinanced, our first payment wasn't/isn't due until over one full month from our closing date.

In terms of the value of your house, that is somewhat irrelevant. The bank wants back whatever you took out the original loan for. They wouldn't care if it was worth nothing. You would still be financing for what you owe them. That is the problem facing many people. How much your house is worth is relevant to the rate they will offer you and the type of loan you can get. We experienced this in our recent refinance.

Whether or not it makes sense to refinance would depend totally on how many years you still have left on your mortage; how much closing costs are; how much difference in loan rate that you are getting. Another circumstance where you might want to refinance financially is if you want to change the terms of loan to be fewer years. You save a bunch in interest charges this way. A 30 year mortgage is way more expensive than a 15.

There are lots of online calculators. If you haven't taken the time, plug your principal in. Compare your current rate to a lowered rate and look at what interest charges you are going to be paying over the long term. If you can financially afford to pay for a lower number of years with a new lower rate, plug these numbers in as well. Don't get fooled into thinking that getting a lower rate by paying for points is worth it. Do the math. Sometimes you are paying more for the points than the difference would be between a higher and a lower interest rate.

Good luck

Not sure why this is so complicated to understand. I think a lot of the responses are accurate those are closing costs. You can either pay them up front or not. If you pay them up front then you won't be adding to the principle of the loan. Whether you want to accept it or not you are a moderate to high risk loan. What makes the interest rates on a home loan lower is the risk of the collateral in this case the home. Traditionally there was little risk because you can't drive it away and hide it, you won't take it out for a spin and wreck it, and homes unlike most other forms of collateral tend to gain in value.

The idea is that people won't walk away from the home because they would be walking away from any equity they had. You have no equity therefore you have no reason to stay, other than your credit which some people don't value. There is a risk that when you walk they cannot recover the full amount of your loan in foreclosure. This additional risk is calculated in the fees they charge up front. If you want to look at it another way check into what a personal loan rate would be for the amount in excess of the value of the home. Say your loan is $20,000 more than the value of the home. A personal loan for that amount would carry a rate around 20%. They are adding a risk factor for that amount since they cannot charge you two interest rates on a home loan, instead they do it using points.

So is it worth it to refinance? Do you understand how to calculate interest? Figure out how long you plan on staying in your home. Calculate the interest you will pay on the current loan if you keep it. Calculate the interest you will pay on the new loan. Subtract to find the difference. If that is less than your fees then you should not refinance. If it is more then you need to look at whether the savings is worth the bother. Excel can do the interest calculations for you if you understand how to use the formulas. Amortization by hand is a pain in the butt. Current principle balance times (current interest rate divided by 12), this is your interest for that month, subtract that from your total payment, the remainder is your principle payment. Subtract the principle payment from the balance, do it over for the next month....lather rinse repeat. Told ya it was a pain in the butt.

New loan is even more fun since you don't have the papers yet so you have to calculate your payments. :) It is the reverse of the other process but good news, there is a formula, bad news, I don't know it off the top of my head. :( Excel has it, have fun with that. I need to get to work.

re: why it feels like you've wasted your money the first few years.....that's how it is with all loans! You pay the interest, not the principal....FOR YEARS! (A minute amount of your payment is applied to the principal.) 20 years ago, we took out a 30yr loan. Our principal is still more than 1/2 of the original loan amount....& that is standard procedure. These last 10 years will be spent knocking away at the principal.

The same goes for car loans. That's why when you go to trade-in at < 2 years, you've thrown your $$$ away. A good policy to follow would be to always add a little bit extra to your payments.....specifically designated to the principal balance! You save on interest paid, you save yourself $$ in the long-run, & your loan is cleared out sooner. Of course, that would be in a "perfect world"! The longest we've gone without HEAVY medical expenses has been 18 months......over the last 23 years. !!

It's probably because they are putting the closing costs into the loan amount and that usually adds up to around $4000. Six thousand sounds WAY too high for normal closing costs, so I would look closely at that. You should make sure you understand what's going on and talk to someone else if this person can't make it clear. Shop around.

FHA loans are subject to all kinds of rules and requirements - even on the condition of your house. I'm not sure how much of this applies when you are just re-financing, but in general, FHA requires that a house be in a certain condition and they might ask you to fix peeling paint, cracked concrete, add handrails, etc... before they will approve your loan. Make sure you understand what might be asked of you now and when you go to sell the house in the future.

with refinancing you always have to weigh out whether it is worth it or not. The reason you are going to pay the amount again is because you are going to be paying closing costs and loan fees all over again so this brings your current balance back up and in your case to the original cost. There are lenders out there that only charge 2000.00 for closing costs.

We have also thought about refinancing but haven't seen it is worth the thousands it cost to refinance when only getting 1% less than our current interest rate.

FHA loans are usually no money down and usually have payments based on your income so are usually very helpful for low income families.

If your current interest rate is only 1% higher then I wouldn't refinance, if it's 4 or 5% then you may benefit from it. If you could pay $50-100.00 more a month on your principle mortgage balance, you will be amazed how many years you will cut off your 30 year mortgage.

S.,
I never had an FHA loan, so I can not offer guidance with that type of loan. Have you paid off $6000 on principle since you first took out the mortgage? Do you have any home equity lines that are in use or second mortgages? If not, then, as another mom stated, the lender is likely rolling in all the closer costs into the new mortgage. A $6000 fee seems high to me, but I don't know how large your mortgage is so this could be in line, but you should shop around. Also, depending upon the type of loan you choose, you could be re-setting the clock. That is, your payment may go down, but you have another 30 years of payments rather than the time you currently have left. It is just something to consider. Good luck.
C.