Wednesday, August 26, 2009

Looking to Refinance

I recently called my home mortgage lender (Bank of America) to see what options we have to refinance our mortgage. We bought the house almost 4 years ago and with interest rates as low as they are, I figured it couldn't hurt to ask. My credit as I suspected is not too hot and they were not able to help me directly with a Bank of America loan, but they did say they could refinance me with a FHA loan.

Here's the pro's for going with the FHA loan:
  • My monthly payments will go down about $75/month.
  • We'll lock a lower interest loan while rates are low
  • There are no closing costs or points required to get the rate I am qualified for
Here's the con's regarding the FHA loan:
  • Stuck with PMI even if I have a less than 80% loan to value balance remaining. The only way out of it would be to refinance again in the future when my credit is better.
  • Bank of America requires a $400 deposit in case the appraiser does not value the house high enough. If they value it high enough that I can do the loan, I'll get the $400 back at closing.
We're going to talk to a realtor friend of ours to get her opinion on the value of the house before we make the decision. I'd hate to throw $400 down the drain...

There is also a very tempting option for us to look at, the HUD 203(k) loan. From my brief reading, it would allow us to pay for some improvements on the house (total must be at least $5K) and that will be added upon the refinanced loan. There are items we would like to do on our home (fix first floor flooring and put in hardwood, put tiles in the kitchen, fix the driveway, replace our fences) but are holding off so that we can build our business. I know when I started this blog I wanted to say goodbye to our debt, but this is something that I am struggling with.

2 comments:

Dedicated said...

With all the debts you have paid down, I thought for sure your credit would be looking better.

I vaguely remember issues with FHA financing. We only do conventional, but something keeps popping into my head about them approving properties that need work or something. If your house items that need to be done are just cosmetic, then no worries, but if there are code issues, you may want to toss this idea. Let us know what you discover.

Have you checked Zillow for your property values? Also call a local realtor and get a FREE Market Analysis this will tell you ahead of time what your property is worth or a rough estimate. Wouldn't want you to lose $400 to find out your property value isn't high enough.

Sick of Debt said...

It's too recent for my credit to have improved much. I'm at least in the 600-625 range (the rep on the phone slipped up and let me know), I was in the 500's a year ago.

I have checked Zillow and it's about 18% above my loan balance.