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JokeStyles

FHA Refinance Question

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Due to a chapter 13 BK discharge that is only 1 year out one of my only good options is an FHA Refinance. I hear a lot of people saying you only need to be in that for 1 year and then you would obviously refinance into a conventional loan but I'm not so sure about this so I wanted to get some feedback. With the fed probably increasing the rates 1/4 of a point every 4 months over the next year, at least that seems to be what people think, it would be optimistic to think one could get in a conventional loan that actually does better than a FHA loan if I was to refinance today. I'm seeing rates at 3.5% for FHA if costs are rolled into the loan and 4% with lender creditscovering the costs including the 1.75% upfront FHA MIP. My situation is that we have enough equity in the house we would qualify to have annual MIP removed after 11 years (unfortunately this was 5 years until a few years back) since our LTV is far less than 90%, it's closer to 40%. To those who say you can't have annual MIP removed, which many lenders seem to think because they do so few FHA loans that are less than 90% LTV, that is not true, it's 11 years for people with less than 90% LTV. This often does not get factored in when determining if you should refinance or not from an FHA loan.

 

So my question is based on what is expected from the market doesn't it seem to make sense at this point to roll the costs into the loan, lower monthly payment, and not expect in the future to be able to refinance for a rate under what I can get if I roll the costs in? Maybe even see if I can pay down some additional points and roll it into the loan? I have calculated it out and with annual MIP I would be paying the equivalent of 4.78% for the first 11 years (includes annual MIP) and 3.64% for the next 19 years. The break even point for the difference in monthly payments vs costs seems to be around 7 years and I plan on staying in the house for much longer than that.

 

Over 30 years with fees rolled into a $417,000 loan bringing it to the $424,000 range I would be paying about $685,000 plus $37,000 in annual MIP for the 11 year period totaling roughly $723,000 over the life of the loan. If I take the 4% option with no costs rolled in I am paying abou $753,500 over the life of the loan. If I don't pay anything up front and refinance I would pay $27,000 over the course of year 1 at 4% interest including annual MIP and then based on amortization schedule I would be looking at refinancing at $410,000 loan left into another 30 year since I don't think I can do a 29 year for example which means I also reset my amortization schedule. So I would be paying $705,000 over the course of the refinance, let's say 4% loan if i'm lucky, which puts me at $732,000 over the course of the loan which is more than if I just initially rolled costs into a $417,000 loan as described above at the lower 3.5% rate FHA has even including the annual MIP. Based on these calculations I would need to get a rate of under 3.9% when refinancing into a conventional which seems quite optimistic to count on over the next 7 years.

 

Maybe I am missing something?

 

Based on my situation or possible inaccuracies in what I am presenting I would appreciate any suggestions. Maybe there are some other options I have not thought about or come across for either lowering my overall amount I am paying on the loan or creatively minimizing the interest I pay on the loan.

 

Thanks for any input

Edited by JokeStyles

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There are a couple of things that stick out in your post

You are correct fha after a 13 is not that hard - to refi out of the fha into a conventional will take longer as the wait time is longer for conventional after a BK (4 years) so the option to jump from one to another will be available but farther down the line

second the rate increase by the feds will have a negative impact on rates but to clarify it is not directly tied to mortgage rates - the rate that is being raised is the prime rate (rate banks borrow from Govt at basically)

 

That said getting a cash out before rates rise is wise - just count the MIP as part of the rate

You may run into loan limits in your area that restrict how much you can borrow

In your situation obviously the loan to value will not be an issue

 

Hope this helps some

 

B

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