+1 vote
My wife and I purchased our home with an FHA mortgage in July 2015. We've been contacted by our original mortgage broker (now with a different company) to do a refinance into a conventional loan. We have about $330k left on the loan for the house, which is worth between $385k and $400k. Evidence suggests home prices in our area will continue to rise.

I know this is a lower LTV ratio than is typically advised for a refinance from FHA to conventional.

Does this seem like a good idea? Our mortgage insurance premium is about $230 / month, and broker (whom I trust) is saying he can get our monthly payment down by up to $250

Should we go for this now? Wait till loan amount is down and home value rises?

What kind of closing costs might we anticipate?
asked Dec 20, 2017 in Refinancing by John

2 Answers

+1 vote
Good morning and thank you for writing. Your potential savings differ depending on the ultimate appraised value of your property, and on your credit report -- and also, of course, the interest rate you're offered.

With a $330,000 balance, your loan-to-value at a $385,000 value is 86 percent, and if your value is  $485,000, your LTV is 83 percent. That's an important distinction, because you'd still be paying private mortgage insurance if you don't pay down your loan balance (cash in) when you refinance. And 85 percent if the cutoff for better rates.

YOur FHA MIP will go away when you refinance to a conventional loan, and that's a good thing. But your lender should also mention that PMI does apply, and its costs depends on your credit rating and LTV. For example, here's part of  a price schedule from one national insurer, with several monthly payments that depend on your credit score and LTV:
                                           FICO -- 760+    FICO -- 700    FICO -- 620
PMI 85.1 to 90 percent       0.24%                    0.43%            0.87%
Pmt $330k balance               $66                     $118             $239
PMI 85 percent & less       0.12%                    0.18%            0.39%
Pmt $330k balance               $33                     $50                     $107

You could wait until you have 20 percent equity, but why? Conventional PMI is almost certainly less than your FHA premiums, and meanwhile, rates are rising. And unlike FHA MIP, PMI drops off once your loan balance falls to 78 percent.  FHA MIP never goes away. What if you wait too long, rates go up, and you're stuck with MIP forever?

I would, however, recommend comparing offers from a few lenders -- easy to do right here. If your current lender is a good one (you did mention liking him), he should be able to compete with other lenders' offers. And if there is a much better deal out there for you, you should at least know about it.

Closing costs are all over the place, another reason to compare complete offers (preferably a Loan Estimate form) from several lenders. Studies show that comparing at least three or four saves typical families thousands at the closing table. It's always good to apply for a loan with open eyes.

answered Dec 21, 2017 by GinaPogol (47,650 points)
0 votes
Have the loan officer do an analysis and see whether you get net tangible benefit with refinancing.  Conventional Loans require private mortgage insurance if loan to value is greater than 80% LTV. However, PMI can be canceled once LTV is lower than 80%. There's another conventional loan program called Lender Paid Mortgage Insurance (LPMI) where you pay a one time upfront private mortgage insurance premium and there's no annual PMI

Gustan Cho
answered Feb 7, 2018 by GustanCho (106,540 points)

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