Refinancing Home after Modification
Good Morning,
I live in Wisconsin, my home is located in California, I Purchased through a FHA loan in 2010 at 4.25 fixed interest rate. In 2012, I was approved for a home modification, due to employment change and value of the home diving, which reduce my monthly payments and knock out a bit of the home price. With the interest being at a low 3.00, would I be able to refinance to the current interest rate given my modification?
Terry Says: I consulted with my favorite mortgage expert, Leslie Struthers of GuaranteedRate.com (leslie@guaranteedrate.com) because this is complicated. Here are some of the points she made, noting that she would have to have a lot more details to give specific advice:
There are several parts to this, let’s start with the basics:
1) Current market value of the property? Sounds like it’s no longer a primary residence. There are loan to value restrictions if it’s an investor property.
2) Terms of the loan modification: There are 2 ways the loan modification is done. The loan can be modified with principal forgiveness which is ideal. However, it is more common for the lender to add any principal reduction to the loan when you refinance. For example, we had someone refinance a loan for $295,000. However, the payoff once we got the loan approved was actually $340,000. The lender added the principal back onto the loan once they knew they were getting paid off.
3) If this is an investor property, the rental income needs to be on the tax returns.
4) Refinance of an FHA loan: You would normally refinance an FHA loan to a conventional loan. Refinancing an FHA loan to an FHA loan would be somewhat cost prohibitive. You have to pay the 1.75% up front premium all over again. Where mortgage insurance was previously calculated at approximately .75% x the loan amount (paid over a 12 month period) with FHA, it is now calculated at. 1.5% of loan amount divided over 12 months. Even if you drop your rate by 1%, the cost of the monthly mortgage insurance takes away a fair portion of the savings you’d realize.
Feel free to contact Leslie directly. I included her email above!
