Please excuse me while I do a brain dump. I've lurked on and off here for a while, but I've had lots to think about over the last 24 hours and just need to pour it all out. Hopefully others find my recent experiences useful.
Some background on my situation:
My purchase price (2007): $575k
1st Loan: GMAC, $460k, Jumbo (conv limit is $417k in OR), 6.375%, interest-only, $2443/mo PI (actually just I)
2nd Loan: Greentree, $86k, HELOC, 7.875%, 15yr balloon, $595/mo PI
Both are original purchase loans.
Current home value: Not 100% sure, but I'm guessing $420k +/- $20k (I'm the smallest house in a VERY affluent neighborhood, custom-built by a single-mom/teacher before I bought it, and everything's bigger & more expensive than mine; comps are hard to find).
I am current on all payments and while money is tight, we are managing (even though it feels like I'm getting kicked in the gut every time I make these $%!& mortgage payments).
A couple days ago, I finally stopped feeling sorry for myself, got off my duff, and called GMAC Mortgage to see if there was anything they could do. Part of my motivation was reading about the FHA Short Refi program, which everybody considers worthless because Freddie/Fannie aren't participating, but I read a couple blog posts indicating that GMAC/Ally Financial is one of the big banks that's giving this a go, and since I have a Jumbo loan I figured what the hell.
First useful thing I learned: After calling their generic customer service number and asking about potentially doing a short refi or something else to give me mortgage relief, they transferred me to their mortgage broker department, but warned me that hold times could be long, so I should write down their direct number:
I did not see this number anywhere on their website.
After holding about 5-10 minutes, I got a hold of Paul, explained my situation, and he was sympathetic and said that they may or may not be able to help depending on the situation. First thing he did was take my account number, punched it in, and said that yes, the investor on my loan is accepting short payoff amounts. After telling me this, he said that there are usually several options available, and that one of the guys in the office specializes in this sort of thing, but he was working on other stuff and would call me back. So I gave my number, and was told that Fred would call me back shortly.
About an hour later, Fred called me back. Without any prompting from me, he said that the FHA Short Refi program was my only option based on my estimated value and the remaining balance on that 2nd mortgage. We spent time talking about the home's value, and he said alot depends on what that comes to. If we assume a $420k value, then he would try and negotiate a $400k payoff of the first in order to bring the total LTV below the required 115%.
He also threw out a potential rate of 4.875%. At this point, I was getting very excited about the idea of significantly reducing both my principal AND my interest rate.
Unfortunately, there are two signficant catches. One of them I expected, and that was going from an interest-only payment to P+I. However, the P+I payment is actually $300 LESS than my current interest payment, which of course is awesome. But the second catch is that I'm now in FHA-land at 96% LTV, and that means mortgage insurance of almost $400/month based on the loan amount. So my net payment will actually be increasing by almost $100/mo. Of course, I'll have almost $500/mo going towards principal and going up from there, but this is a small cashflow issue (not to mention the ironic fact that principal paydown may not be a good thing if values keep declining. Oh, and that my taxes will be going up with such lower interest payments). And one other annoyance is that I'll have to include taxes and insurance in my payment, which I've gotten really used to handling on my own by using portions of regular bonuses and stock grants I get from my employer. Add it all up, and I'll be going from $2443 interest-only to ~$3,100 PITI.
Still, it's at this point where I scream to myself, what are you waiting for? They're wiping out 60 thousand freaking dollars and cutting my interest rate by 1.5%. Are you daft? TAKE THE DEAL! So I went ahead and told Fred to go ahead with this, even while the back of my mind was frantically working out how I could rearrange my budget to handle the larger total payment. He took an application over the phone, and told me he might not hear from the investor until Monday.
Well, the very next day he called to say that I was pre-approved. The investor agreed to a $400k payoff, and all the paperwork was getting emailed to me. Upon inspection of the paperwork, I see that he's locked in a rate of 4.75% for 90 days (so my payment will be about ~$40 less than the 4.875 we talked about), and furthermore I see that the loan reduction is actually $67,000, with the extra $7,000 being applied to my closing costs. The final new loan amount comes to $404,000, with an extra $4k rolled into the loan for the required 1% up-front FHA mortgage insurance premium.
That's where I'm at right now. I'll be signing the paperwork and sending in income docs over the weekend, after which an appraiser will come by the house (the house's value is still the million-dollar question in all this). I find that there are still questions lingering in the back of my head:
I will be doing my best to answer these and other questions for myself as I move forward, and I will try and keep my progress updated here. If anybody has any thoughts or suggestions, I would love to hear them, but in the meantime thank you for allowing me to get my thoughts written down. And wish me luck!
- Could I get a lower rate? I see that advertised rates are currently in the 4.3-4.5 range. Maybe FHA is a little higher?
- Should I shop around? One thing about this FHA program: I can use any lender for the new loan. But the fact that they have a direct line to the note holder and can negotiate with them seems like a big plus, and I wouldn't want to jerk them around too much if that payoff gets put in jeopardy. And Fred has been helpful. Furthermore, if they're still evaluating this program, it seems like I should make it turn out good for them as well.
- Will I be able to refinance again in the near future to reduce that mortgage insurance premium? Based on what the 1st's LTV will be, I doubt I can eliminate it, but maybe conventional mortgages have lower PMI rates?
- Can I still settle my 2nd after doing this? Up until now, my main strategy was going to try and settle my second per the excellent "Strategy for settling your 2nd" thread. However, I thought it would be prudent to at least check with my 1st to see if anything can be done while my credit is good. Doing this refi will cause the second to have a small amount of equity again ($16k out of an $83k balance), and that equity could grow as I pay down the principal. It sure would be sweet if I could both do this refi, AND settle the 2nd for 10-20%. Not sure if that's possible.