Buying a Home in Salt Lake City, UT

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Refi Without PMI, Even if Your Home Value Has Declined

Refi without PMI!Have property values declined, not so much as to put you ridiculously upside-down, but enough that your current loan balance may no longer be less than 80% of the current value of your home? If you're in a position where you don't pay PMI now because you didn't need to pay it when you first took out your current loan, or because you didn't need it the last time you refinanced... perhaps you've felt that refinancing wouldn't benefit you, having heard that the cost of PMI has increased significantly over the past few years.

Many homeowners are unaware that both Fannie Mae and Freddie Mac have refinance programs available whereby if you have a conventional loan on which you were not required to pay PMI at its inception, you can refinance your loan at the current low rates and NOT pay PMI even if your current Loan-to-Value ratio is no longer less than 80%.

You do have to meet a few reasonable requirements to qualify.

Here is a preliminary test.

Y   N     Do you have a conventional loan?

Y   N     Did you have to pay PMI on your current loan when you got it?

Y   N     Do you currently owe more (on your first mortgage alone) than your home's current value?

Y   N     If you have a second mortgage, will your junior lienholder subordinate?

Y   N     Have you had any late payments on your existing mortgage in the past 12 months?

If you selected the answers I marked in bold, you likely qualify for a refi with no PMI (even if your current Loan to Value is > 80%!).

More details:

  • If the existing loan (the loan being refinanced) does not have PMI, the new loan will not need PMI regardless of the LTV.
  • The new loan can be used to pay off the existing 1st mortgage and cover closing costs, but the maximum cash back to the borrower is $250.
  • Also, the maximum allowable LTV is 105%. (Meaning, if your property has declined so much that you are more than 5% upside down (considering the current value and the payoff of your first mortgage plus the closing costs if you wish to roll those in), you will not qualify.)
  • New subordinate financing is not permitted. (You can leave the existing junior mortgage(s) in place if they agree to re-subordinate)
  • There is no maximum CLTV (Combined Loan To Value (i.e. Total of all loans combined) or HTLTV (Total of loans and home equity lines combined). (In other words, so long as the first mortgage you are refinancing is less than 105% of the current market value, you will still qualify to refinance that first mortgage even if junior liens would take you over 105%!)
  • Automated underwriting determines if an appraisal is needed. (The purpose of the appraisal is to determine if the new loan will be over 105% of the current value, NOT to determine whether or not you will have to pay PMI.)
  • For credit scores, property types, occupancy types, high LTVs and subordinate financing, pricing adjustments applyjust as they do in regular purchase and refinance transactions.
  • New loan can be a 30, 20 or 15 Year Fixed Rate or a 5/1, 7/1, or 10/1 ARM for true conforming loan amounts (loan amounts of $417,000 or less).  New loan can be a 30 or 15 Year Fixed Rate or a 5/1, 7/1, or 10/1 ARM for super conforming loan amounts.
  • Available for all occupancy types (owner occupied, 2nd homes and investment properties)
  • Available for all property types (1 - 4 unit properties).
As you can see, it will depend on how many loans you have, how low home values have declined, whether you have maintained good credit, etc. etc. If it sounds like you may qualify, please contact a reputable lender and ask about these programs.
 
Fannie Mae's program is called "DU Refi Plus". Freddie Mac's program is called "Open Access". The two programs are virtually identical. There are some slight differences, but nothing major as far as the qualifying guidelines go.
 
Looking to purchase instead of refinancing?
 
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Comment balloon 6 commentsBenjamin Clark • October 05 2011 10:12PM

Comments

Great post, very informative. I appreciate the time and effort you put forth creating this post. Thanks for the contribution.

Posted by Paul Dougherty Associate Real Estate Broker, Trusted, Tested & True. Our Results are Better! (Daniel Gale Sotheby's International Realty) about 8 years ago

thats some great info that I did not know.  It's amazing how many loan options are out there and I am pretty sure that many lenders don't even know about a lot of these programs. 

Posted by Jeremy Joslin, Professional Real Estate Marketing and Sales (Coldwell Banker Residential Brokerage) about 8 years ago

Thanks guys!

There is the possibility of running into a 2nd that won't subordinate. For example, if the same lender gave the first and the second there may be incentive NOT to subordinate in order to keep the rate high on both loans. If the value has declined, what other option does the buyer have but to bite the bullet and pay the PMI (if they can refinance at all)? And if the buyer doesn't refi, the bank keeps rolling in the money from both loans. It's a sad reality.

But the fact that this may be possible for a lot of people who are now at over 80% Loan to Value who started out with a single loan and a 20%+ down payment, and also for some who avoided PMI with 2 loans to start is something that should be shared with homeowners who may be paying 1 or 2% (or more) too much in their rate considering where rates are at right now.

 

Posted by Benjamin Clark, Buyer's Agent - Certified Negotiation Expert (Homebuyer Representation, Inc.) about 8 years ago

This is an interesting post and one that is most informative.  I know folks are confused about whether or not to refinance.  This post answers a lot of those questions.

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) about 8 years ago

Another thing I've found out since writing this is that loan level pricing adjustments still occur.

For example, there is (up to) a 1.5% adjustment (1.5% of the loan amount) if the original loan had subordinate financing or if there will still be subordinate financing. This adjustment can either be paid up front or can be paid in the rate.

For example, on a $200,000 loan, the adjustment could be $3,000 - paid up front. This can be paid by the person refinancing with no effect on the rate, or the rate could be adjusted to cover the rate. The adjustment to that rate is not 1.5%, but whatever will yield the $3,000 to pay the 1.5% adjustment at closing. (Currently about .25%... but this will fluctuate daily as pricing fluctuates.)

PMI would currently be near $200 per month. A .25% difference in the rate is only about $30 per month on a $200,000 loan at current pricing. So refinancing still makes a lot of sense even with the adjustment in most cases. Remember, the whole reason we are talking is because you don't pay PMI now and you don't want to pay PMI on your new loan, but you do want to lower your interest rate and monthly payment, if possible.

If the original loan did not have subordinate financing, there would be no subordinate financing pricing adjustment, and there would only be such a large adjustment if the current combined loan to value of all the loans exceeded 95%. This example is simply to show that even with the adjustments, refinancing still might make a lot of sense,

Posted by Benjamin Clark, Buyer's Agent - Certified Negotiation Expert (Homebuyer Representation, Inc.) about 8 years ago

Another post that discusses how to calculate the cost vs. the benefit of refinancing.

 

Posted by Benjamin Clark, Buyer's Agent - Certified Negotiation Expert (Homebuyer Representation, Inc.) about 8 years ago

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