I've posted the same question in the forums, but I thought I'd also post the same question here:
I've posted in the forums previously about a house that we own that we no longer live in. My family moved 3 1/2 years ago, and the house has been on the market and unsold ever since. We owe about $105,000, and my best guess is (with input from our Realtor) that it's worth somewhere between $95,000 and $105,000 at this time. The house is located in a small villge in the northern part of Michigan. The list price on the house is $109,900, which when Realtor commissions and closing costs are added in, puts us about $4,500 in the hole.
One week ago, we had new renters move in. They are interested in buying the house, but are not in a financial position to do so right now. We struck a deal with them to remove the house from the market for 12 months. They are paying $100 per month above what we asked for rent in exchange for us removing the house from the market (we had been asking for $800 in rent, and they are paying $900 per month.) Also, when the 12 months is up, the (presumed) $1,200 they've paid in addition to the rent will be put toward a down payment.
So ... on to my question. Would it be a good idea for us to refinance our loan while we wait? We are paying $6.25% interest. The original amount borrowed was $120,000, and we are paying $738/mo. Int + Prin.
There is of course no guarantee that our renters will buy the house in July 2012, but I'd like to use 12 months as my planning horizon.
Over the next 12 months, I will pay $6,500 in interest on the loan as it currently is.
If I were able to refinance for 5.25% (one point lower than current), I would save $158/mo. in mortgage payments and $1,000 in total interest payments, assuming a 30 year refi.
Or we could refi at a 20 year payoff, keep our payments approximately the same, and bite off more principal each month.
What are mortgage rates these days? What can I expect for closing costs? Clearly, I don't have 20% Loan to Value.
Any thoughts would be appreciated.
Thanks
Question on House Refi
July 25th, 2011 at 03:29 pm
July 25th, 2011 at 03:40 pm 1311608405
July 25th, 2011 at 03:41 pm 1311608460
If your loan is 120,000 but the house is only worth 95,000; I don't think the rate decrease would be worth it since you would have less than 20% equity and need to pay PMI which you did not mention in this blog entry.
Also I am not sure IF you can refinance a upside down mortgage without either bring a bunch of down payment to the table or to getting a secondary loan.
You can go online and most mortgage loan rate calcultors will tell you the closing cost once you plug in some loan facts.
July 25th, 2011 at 04:10 pm 1311610256
All that said - I have to agree with the others. No bank would loan to you without any equity. Personally, I wouldn't even bother trying. (Even if you found a bank willing to - then you have PMI to contend with - as also mentioned).
July 25th, 2011 at 05:45 pm 1311615943
Try googling "rental property rates" and/or "rental property lending guidelines" and see what pops up.
July 25th, 2011 at 06:16 pm 1311617809
Since this is a non-owner occupied home, you are looking at conventional financing. (FHA and VA loans are for owner occupants only.) That means the loan must either (1) conform to Fannie Mae or Freddie Mac guidelines, or (2) be issued by a lender willing to hold the note to maturity. Usually, a bank is not the place for that, you need a private lender or group of private investors.
Freddie Mac wants a maximum LTV ratio of 75%:
http://www.freddiemac.com/sell/factsheets/ltv_tltv.htm
Fannie Mae wants a maximum LTV ratio of 75%:
https://www.efanniemae.com/sf/refmaterials/eligibility/pdf/eligibilitymatrix.pdf
So if the home appraises for 100k, you may owe no more than 75k. You will need to pay the difference, plus closing costs, out of pocket.
July 25th, 2011 at 07:28 pm 1311622109