Question:
Dear Dr. Don,
We currently have a 30-year conventional mortgage at 7 percent, with a loan balance of $192,000. We have never, ever, missed or been late on a mortgage payment.
What are the rules regarding refinancing after a Chapter 7 bankruptcy when it has been two full years since the bankruptcy was discharged? What kind of interest rate could we get for a traditional conventional loan vs. FHA for a 15-year fixed rate loan with credit scores of 720 and 665? We would not require any cash out and other than our mortgage, we are debt free.
Answer:
Dear Meg,
Fannie Mae and Freddie Mac require four years from either the dismissal date or the discharge date for a Chapter 7 bankruptcy, so getting approved for a conventional loan just two years out isn't in the cards. The Federal Housing Administration discusses its underwriting standard in a FAQ on its website:
Question:
How does a bankruptcy affect a borrower's eligibility for an FHA mortgage?
Answer:
A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA mortgage if at least two years have elapsed since the date of the discharge of the bankruptcy. Additionally, the borrower must have re-established good credit or chosen not to incur new credit obligations. The borrower also must have demonstrated a documented ability to responsibly manage his or her financial affairs. An elapsed period of less than two years, but not less than 12 months, may be acceptable if the borrower can show that the bankruptcy was caused by extenuating circumstances beyond his or her control and has since exhibited a documented ability to manage his or her financial affairs in a responsible manner.
Additionally, the lender must document that the borrower's current situation indicates that the events that led to the bankruptcy are not likely to recur.
Your credit scores meet the standards for FHA refinancing. These standards were recently updated in "Mortgagee Letter 10-29," which states: "Borrowers with a minimum decision credit score at or above 580 are eligible for maximum financing."
Since you're not looking for cash-out at closing, you should qualify for FHA streamlined refinancing. The Department of Housing and Urban Development Web page "Streamline Your FHA Mortgage" discusses this loan program.
Bankrate doesn't report FHA loan rates, but you can use Bankrate's weekly averages for national mortgage rates to evaluate the rate you're offered on your FHA mortgage.
Показаны сообщения с ярлыком refinance. Показать все сообщения
Показаны сообщения с ярлыком refinance. Показать все сообщения
четверг, 3 марта 2011 г.
вторник, 1 марта 2011 г.
Refinancing without home equity
Q: Dear Dr. Don,
I bought my house in 2005 for $375,000 and the interest rate on the mortgage is 5.25 percent. I put 10 percent down and pay PMI (private mortgage insurance). The principal that I owe on my house is approximately $308,000. I am thinking about refinancing to a 15-year fixed-rate mortgage. My wife and I earn approximately $180,000 combined a year and have excellent credit. The problems I have are that due to the economy, I don't have 20 percent equity, and I am not sure how long I am going to stay in this house. I need advice.
-- Joe Jericho
A: Dear Joe,
Not having 20 percent equity puts you in the position to need PMI on the refinance as well, assuming you have enough equity to qualify for a mortgage. If you don't, you can consider a cash-in refinancing, where you put additional money down at closing to qualify for the loan. The Bankrate feature, "'Cash-in' refinance activity skyrockets," provides more detail about this approach.
You're paying PMI now, so continuing to pay PMI on the refinancing, while not optimal, shouldn't add much, if anything, to your monthly mortgage payment. Capturing a lower interest rate is the real attraction in moving to a 15-year fixed rate mortgage.
By incorporating the cost of the PMI into the refinancing decision, you can still use a refinance calculator to estimate whether it makes sense to refinance, given the amount of time you plan to be in the house. Bankrate's refinance mortgage calculators will help you with that calculation.
You could also look into a Federal Housing Administration, or FHA, mortgage. You can qualify for this mortgage with a lower down payment. You still have a monthly mortgage insurance premium, or MIP, and will pay an insurance premium at closing for this type of mortgage. The FHA Frequently Asked Questions page on the Department of Housing and Urban Development, or HUD, website will give you an overview on this type of mortgage loan.
I bought my house in 2005 for $375,000 and the interest rate on the mortgage is 5.25 percent. I put 10 percent down and pay PMI (private mortgage insurance). The principal that I owe on my house is approximately $308,000. I am thinking about refinancing to a 15-year fixed-rate mortgage. My wife and I earn approximately $180,000 combined a year and have excellent credit. The problems I have are that due to the economy, I don't have 20 percent equity, and I am not sure how long I am going to stay in this house. I need advice.
-- Joe Jericho
A: Dear Joe,
Not having 20 percent equity puts you in the position to need PMI on the refinance as well, assuming you have enough equity to qualify for a mortgage. If you don't, you can consider a cash-in refinancing, where you put additional money down at closing to qualify for the loan. The Bankrate feature, "'Cash-in' refinance activity skyrockets," provides more detail about this approach.
You're paying PMI now, so continuing to pay PMI on the refinancing, while not optimal, shouldn't add much, if anything, to your monthly mortgage payment. Capturing a lower interest rate is the real attraction in moving to a 15-year fixed rate mortgage.
By incorporating the cost of the PMI into the refinancing decision, you can still use a refinance calculator to estimate whether it makes sense to refinance, given the amount of time you plan to be in the house. Bankrate's refinance mortgage calculators will help you with that calculation.
You could also look into a Federal Housing Administration, or FHA, mortgage. You can qualify for this mortgage with a lower down payment. You still have a monthly mortgage insurance premium, or MIP, and will pay an insurance premium at closing for this type of mortgage. The FHA Frequently Asked Questions page on the Department of Housing and Urban Development, or HUD, website will give you an overview on this type of mortgage loan.
воскресенье, 27 февраля 2011 г.
Home equity lenders may block refinance
As homeowners try to refinance their mortgages at lower rates, their home equity lenders are telling them, "Not so fast."
Home equity lenders are throwing roadblocks in front of their clients who want to refinance their primary mortgages. In some cases, they delay refinances for a month or more; in other cases, they block homeowners from refinancing altogether -- all because of something called "resubordination."
"It can completely blow a refi out of the water," says Christopher Cruise, senior loan officer for GOTeHomeLoans.com in Bethesda, Md.
Resubordination comes into play when a homeowner wants to refinance a primary mortgage and keep the second mortgage in place -- either a home equity loan or a home equity line of credit. Before the refi can happen, the home equity lender has to agree to let the second mortgage remain where it is -- in second position -- instead of moving up in line and becoming the primary mortgage. That agreement is a resubordination.
Think of the situation as a restroom queue at a concert. Your name is Primary, and you're at the front of the line. Behind you is someone named Equity. Then your friend Refi runs up and needs to go -- really bad. You ask Equity if it's OK if Refi takes your place. If Equity denies permission, or takes too long to grant it, there can be messy consequences.
A bank's refusal to resubordinate can be costly to the homeowner. Caleb Shaffer has two mortgages on his duplex in Oakland, Calif. Both loans are with SunTrust. A credit union offered to refinance the primary mortgage at a lower rate, saving roughly $250 to $300 a month. Shaffer says he couldn't go through with the refinance because SunTrust refused to resubordinate the second mortgage. (SunTrust has received $5 billion in TARP funds from the federal government, or $34.13 for every working American.)
Shaffer says he was told that he could refinance with SunTrust, but not with another lender. "They're saying their policy is they don't subordinate unless it's within the family of SunTrust," he says.
SunTrust offered to combine his two mortgages and refinance them into one loan. But if the loans were combined, he would end up with a higher-rate jumbo mortgage, with much higher monthly payments. The point of getting two mortgages (of $500,000 and $100,000) was to avoid getting a jumbo loan, with its higher rate.
A SunTrust spokesman denies that there's a policy requiring borrowers to refinance with SunTrust. "While I can't comment on specific individual relationships, in general, we do consider resubordinations of second liens on a case-by-case basis taking into account numerous factors," spokesman Hugh Suhr says.
Undoubtedly one of those factors is loan-to-value ratio. Shaffer paid $670,000 for the duplex in March 2008. He borrowed $600,000. Zillow estimates its value now at $644,000. The loan-to-value ratio was about 90 percent when Shaffer got the loan, and now the ratio is around 93 percent. Nowadays, lenders are reluctant to let people borrow more than 80 percent of a home's value, and 93 percent is really pushing it.
Pay off equity loan
You would think that a home equity lender would welcome a refinance of a primary mortgage if the refi results in a lower monthly payment. But from the equity lender's perspective, the optimal outcome would be for the borrower to pay off the equity loan and close the account. "They probably figure if they play hardball, they'll get paid off," says Matt Hackett, underwriting manager for Equity Now, a mortgage bank headquartered in Manhattan.
Jeff Lazerson, president of MortgageGrader.com, an online brokerage based in Southern California, says equity lenders want borrowers to close their accounts "because then they can get the cash back that was in the account, and their balance sheets look better."
If lenders are trying to pressure borrowers into paying off their home equity debt, they're not coming out and saying it. They expect borrowers to figure it out themselves. Anyway, in Shaffer's case, paying off the $100,000 home equity loan isn't an option.
Delays and fees
Loan officers and mortgage brokers say it's not unusual to wait for more than a month for a resubordination decision. One broker says it took more than six weeks -- from Dec. 26 to Feb. 10 -- for Wells Fargo to approve a resubordination request. (Wells Fargo has received $25 billion in TARP funds, or $175.93 for every working American.)
"So many lenders have been swamped by these -- and they're frankly not a priority," Cruise says. "Even those that are not being denied are taking 30 to 45 days, and can cost $50 to $250, depending on how much the lender wants to charge."
Not only do lenders charge fees to process resubordination requests, but borrowers incur even more fees when they have to extend rate locks in response to resubordination delays.
In many cases, lenders require rate locks of 45 days or more on refinance applications requiring resubordination.
But for homeowners in this situation, there aren't many options. They can pay off the home equity loan or consolidate the loan with the same mortgage lender. And if neither of those is feasible, there's no chance of refinancing.
Home equity lenders are throwing roadblocks in front of their clients who want to refinance their primary mortgages. In some cases, they delay refinances for a month or more; in other cases, they block homeowners from refinancing altogether -- all because of something called "resubordination."
"It can completely blow a refi out of the water," says Christopher Cruise, senior loan officer for GOTeHomeLoans.com in Bethesda, Md.
Resubordination comes into play when a homeowner wants to refinance a primary mortgage and keep the second mortgage in place -- either a home equity loan or a home equity line of credit. Before the refi can happen, the home equity lender has to agree to let the second mortgage remain where it is -- in second position -- instead of moving up in line and becoming the primary mortgage. That agreement is a resubordination.
Think of the situation as a restroom queue at a concert. Your name is Primary, and you're at the front of the line. Behind you is someone named Equity. Then your friend Refi runs up and needs to go -- really bad. You ask Equity if it's OK if Refi takes your place. If Equity denies permission, or takes too long to grant it, there can be messy consequences.
A bank's refusal to resubordinate can be costly to the homeowner. Caleb Shaffer has two mortgages on his duplex in Oakland, Calif. Both loans are with SunTrust. A credit union offered to refinance the primary mortgage at a lower rate, saving roughly $250 to $300 a month. Shaffer says he couldn't go through with the refinance because SunTrust refused to resubordinate the second mortgage. (SunTrust has received $5 billion in TARP funds from the federal government, or $34.13 for every working American.)
Shaffer says he was told that he could refinance with SunTrust, but not with another lender. "They're saying their policy is they don't subordinate unless it's within the family of SunTrust," he says.
SunTrust offered to combine his two mortgages and refinance them into one loan. But if the loans were combined, he would end up with a higher-rate jumbo mortgage, with much higher monthly payments. The point of getting two mortgages (of $500,000 and $100,000) was to avoid getting a jumbo loan, with its higher rate.
A SunTrust spokesman denies that there's a policy requiring borrowers to refinance with SunTrust. "While I can't comment on specific individual relationships, in general, we do consider resubordinations of second liens on a case-by-case basis taking into account numerous factors," spokesman Hugh Suhr says.
Undoubtedly one of those factors is loan-to-value ratio. Shaffer paid $670,000 for the duplex in March 2008. He borrowed $600,000. Zillow estimates its value now at $644,000. The loan-to-value ratio was about 90 percent when Shaffer got the loan, and now the ratio is around 93 percent. Nowadays, lenders are reluctant to let people borrow more than 80 percent of a home's value, and 93 percent is really pushing it.
Pay off equity loan
You would think that a home equity lender would welcome a refinance of a primary mortgage if the refi results in a lower monthly payment. But from the equity lender's perspective, the optimal outcome would be for the borrower to pay off the equity loan and close the account. "They probably figure if they play hardball, they'll get paid off," says Matt Hackett, underwriting manager for Equity Now, a mortgage bank headquartered in Manhattan.
Jeff Lazerson, president of MortgageGrader.com, an online brokerage based in Southern California, says equity lenders want borrowers to close their accounts "because then they can get the cash back that was in the account, and their balance sheets look better."
If lenders are trying to pressure borrowers into paying off their home equity debt, they're not coming out and saying it. They expect borrowers to figure it out themselves. Anyway, in Shaffer's case, paying off the $100,000 home equity loan isn't an option.
Delays and fees
Loan officers and mortgage brokers say it's not unusual to wait for more than a month for a resubordination decision. One broker says it took more than six weeks -- from Dec. 26 to Feb. 10 -- for Wells Fargo to approve a resubordination request. (Wells Fargo has received $25 billion in TARP funds, or $175.93 for every working American.)
"So many lenders have been swamped by these -- and they're frankly not a priority," Cruise says. "Even those that are not being denied are taking 30 to 45 days, and can cost $50 to $250, depending on how much the lender wants to charge."
Not only do lenders charge fees to process resubordination requests, but borrowers incur even more fees when they have to extend rate locks in response to resubordination delays.
In many cases, lenders require rate locks of 45 days or more on refinance applications requiring resubordination.
But for homeowners in this situation, there aren't many options. They can pay off the home equity loan or consolidate the loan with the same mortgage lender. And if neither of those is feasible, there's no chance of refinancing.
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