Your Questions About Mortgage Refinancing Programs

Robert asks…

If you want to refinance a home mortgage, will the lender ask for an independent appraisal of your house value?

John answers:

The answer in almost all cases would be: yes, an independent appraisal is required.
The few exceptions are for certain programs such as a FHA streamline refinance, Va streamline refinance and some loans in the HARP mortgage program.

Your LTV (loan to value ratio) is critical in determining your eligibility for a loan and whether you will need mortgage insurance. FHA loans, for example, have less strict credit score criteria and allow up to 96.5% financing.

I recommend that you read the article about Understanding LTV and your mortgage. You will find much more detailed information about how to calculate your LTV and different loan programs available.

Joseph asks…

Is there any way to refinance my mortgage if my house is upside down? I mean seriously under water.?

My interest rate is about 6.5% and we owe $300,000 on a house that is worth $225K. Is there a way to refinance my mortgage without a loan modification?

John answers:

Yes. With that LTV you may be able to qualify for the HARP program 2.0. With this program, under water mortgages are able to refinance, but only if you meet all the qualifications.

The LTV guidelines are supposed to be “limitless”, but that is only the guidelines. Lenders have the choice to approve or deny HARP refi’s. I have heard of lenders going up to 150% LTV, which you definitely fit under.

There are some more qualifications you must meet, however. The most important are:

– Your loan must be backed by Freddie Mac or Fannie Mae – no exceptions there.
– You cannot have more than one late payment in a year and the last 6 months have to be current. If you have a late payment 4 months ago, you have to wait a couple months to be eligible.
-You have to have taken our your mortgage loan on or before June 1, 2009.

If you meet those requirements, I would suggest contacting your loan officer and having them determine if you qualify.

In my experience, this program will only help homeowners with mortgage balances on the higher side and their current interest rate is at least 6% or higher. If you have a low mortgage balance, your really not going to see that great of a monthly savings to justify the closing costs. You would probably see a good amount of savings with a low 4% interest rate (which is what you can expect with the HARP 2.0 program).

Hope that helps!

Mary asks…

Looking to Refinance?

We want to refinance but have no idea who to talk to or where to go to get the best rate. We don’t want the credit report pulled over and over which would make the fico score go down so how should we go about finding the best interest rate.

John answers:

Refinaning a home is similar to the purchase of a home. You have to apply to a mortgage broker for a loan.

A mortgage broker has many lenders that underwrite his loans, so if one approval is not to your liking he does not have to pull another credit report to submit your loan to another underwriter

In order to find out the type of loan programs you are qualified for you will have to fill out a loan application, with a mortgage broker, which you can find one in your local telephone book.

He will fill out this application, which takes awhile so grab your favorite beverage and sit down. Once you have completed the application, he will run your credit report which will have your credit scores. These credit scores will determine your interest rate.

The amount of your monthly debt payments you are required to pay as per your credit report and the amount of mortgage you can take on based on your income.

When you speak with the mortgage broker you will need the following documents to complete the loan application, there will be others, but this will get you started.

#1 One month of pay stubs for each person that will be on the mortgage.

#2 Six months bank statements from each bank in which you bank as well as statements from any 401K from you place of employment.

#3 Two years of federal income tax along with the W-2 that match.

Now make sure you and your mortgage broker go over all your options as to the mortgage programs you qualify for, the interest rate, monthly payments.

You should select the loan that best suit your financial condition at the time. That could be an adjustable rate loan. It could be a fixed rate loan for 5 or 10 years and then adjust. Some adjustable rate mortgages only adjust once.

Make sure your mortgage broker explain all your options so you may make an intelligent decision.

What might be good for one person might not be good for you, in other words just because your friends and all your real estate buddies are telling you about the great fixed rate they got, your financial situation might call for something else.

So select the best option for you and your financial situation.

You should also get a Good Faith Estimate (GFE) which will indicate the cost you will have to pay for getting this loan.

Your mortgage broker will now order an appraisal to show proof of the property value. By now you should know the percentage of teh value of your home you will be able to borrow against.

The mortgage broker might ask for additional information or documentation, don’t get all up tight this is normal, just supply the information or find the documents needed.

After the appraisal has been completed you will be called by your mortgage broker to sign your loan docs. After signing your loan docs you have three (3) days to decide if you still really want this loan. It is called a three (3) day right of recission

Before signing any loan docs make sure they say exactly what you and your mortgage broker went over when you decided on what mortgage program was best for you.

I hope this has been of some use to you, good luck


Sandy asks…

1% interest only mortgage / loan?

Can anyone explain to me what the 1% refers to in all these ads for mortgages/refinancing? We just got a quote from a broker for a refinance at 1.5% but the “Truth in Lending” sheet shows a variable rate, which starts at 7.4%. Our loan broker isn’t giving us a straight, understandable answer – help!!

John answers:

This is most probably a MTA loan or another variable index. Let’s focus on this as a MTA product, because this is most likely the loan product, and would be the best one offered.

The following is a link to the MTA index:

This can be a very powerful program for better and for worse. The reason that your loan officer is probably not giving you straight answers is because he probably does not understand the mortgage. (This is further displayed by his TIL because the APR should be about 10.5%)

Here are some calculations from my web site that should help give a little explaination to the program. I use a 40 yra term compared to a 30 year term. These are meant to be approximate numbers using a 200,000 loan amount.

This is your actual interest rate and undeferred payment: 1,301.39

Here is your payment at 1.5%: 554.34

Your actual interest rate is 7.4%. The loan program allows you to pay less. Anything that you pay less than the $1301 is added to the principal balance of the loan.

For instance, if you pay 554, 1301 – 554 = 747. 200,000 + 747 = 200,747 = principal balance of home loan in month 2 (interest will be calculated off of the new loan balance).

The minimum payment feature is typically fixed for 5 to 10 years. The actual interest rate is variable and changes every month.

If you look at the previous MTA link, that has your actual index/month. That index plus the loans margin = interest rate. The index is going higher, and you should expect an average loan interest rate of 7.5% – 8% over the next year or so. Any increases or decreases in the rate will mean greater deferment from your minimum payment. We are upticking, so don’t expect the interest rates for the MTA to go down.

Listen… This answer is long enough as it is. I’ll get right to the nitty gritty.

You really have to consider your goals with the program. If you are self employed, or flipping houses(buying out of the prepay) and the loan program opens up cash flow to put towards your business… It’s great.

I don’t think that this is the case for you.

For the typical person who is being pitched this mortgage for their primary home it is a very bad product. Unless you really understand the mortgage and have additional investment plans with the deferred payment, it’s not worth it.

One very nasty feature to your common borrower is there is an automatic payment RECASTING. This means that if your principal loan balance becomes 115% (eg. 230,000) of its original amount you must pay the fully indexed payment (1301/month). For most people this is projected to happen about year 4.

Unless you are able to take the $700 payment savings and put it into a higher yielding investment of 10% or greater, I would not do this loan program. (especially, if you can afford a more traditional program at this point.)

Linda asks…


Hi everyone,

I’ve been trying to refinance for the last six weeks. I have been told that lenders just are not lending money like they use to and are not offering the program that I need EXCEPT for this one lender, which is currently underwriting my loan. I’ve been told that my loan has been in underwriting the last three days and still nothing. I’m starting to get rather irritated and wonder if my broker is actually telling the truth and giving me a story. My refi is pretty straight forward so I do not understand what the hold up is. Is anyone experiencing this or am I the only “lucky one”.

Thanks in advnace for any feedback!!

John answers:

A loan being in underwriting for three days is nothing to be worried about. It takes time to review all the applications that come in and get a list of “stips” back to the broker.

I am in the mortgage business and just refinanced my home as well. My husband and I have stellar credit assets and equity and it took ours almost two weeks to be approved.

Just make sure your loan officer is staying on top of things.

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