Who to refinance with

[sam_gordon]

DW & I are looking to refinance. Not only do we want to lower our interest rate, but we'd like to get some "cash back" to do some maintenance on the house.

House is 10 years old (we bought it new). We are 3 1/2 years into a 30 year refinance (have 26 1/2 years left on this note). That rate is 4.75%

Option #1: In-state broker/direct lender (I know they'll sell our mortgage to someone else). They are offering 3.875% for a 30 year or a 25 year. $1200 closing costs.

Option #2: Out of state broker (they'll also sell the mortgage). They are offering 3.625% for 30 or 25 year. $1800 closing costs.

The woman in option 2 says we can only get cash back if our house appraises for enough.
The guy in option 1 says our house should appraise just fine.

Both options would require us to "prefund" escrow (about 8 month of taxes.).

So, how do I decide between the two? I tried to look up reviews of both of them without a lot of luck. I think option #2 comes out to ~$60/month less in costs.

I don't want to pay a bunch of money and then find out the rates of changed or the house doesn't appraise for as much as we'd like/need. We'd need the house to appraise for only $5K more than what we paid 10 years ago for this to work out.

The "latest" home zillow.com has in our neighborhood was sold in May 2011 (there have been houses sold more recently, but they're not appearing on Zillow). So I don't know how to approximate the house value.

So, what questions do I ask now? Thoughts?

Thanks

 

[pklein09]

I can't comment on which option to choose, but I do question the "prefund" of escrow with 8 months of taxes. Are you sure? I'm in NJ, and when we had an escrow account, they wanted a full 2 months worth of expenses in the account at all times. Of course, there was more than that because I was paying escrow with my mortgage payment, but that was the number they used when the settled the account on the anniversary of the loan. About 2 years ago, we eliminated the escrow account and now pay our taxes and insurance directly.

 

[sam_gordon]

I can't comment on which option to choose, but I do question the "prefund" of escrow with 8 months of taxes. Are you sure? I'm in NJ, and when we had an escrow account, they wanted a full 2 months worth of expenses in the account at all times. Of course, there was more than that because I was paying escrow with my mortgage payment, but that was the number they used when the settled the account on the anniversary of the loan. About 2 years ago, we eliminated the escrow account and now pay our taxes and insurance directly.

The issue is our taxes come due in November. A new escrow account wouldn't have enough money in it by November unless we "pre-fund" it. So we put money into the escrow at closing, and then 30 days later, we get a refund of what's left in our current escrow account.

 

[mrsklamc]

Have you checked with a local credit union?

 

[mikehn]

The two escrow accounts will wash out, so nothing to be concerned there. However, getting cash out might be an issue. You've only been in your home a few years so you have not built up much equity in it yet. I cant imagine the value of your home has risen much since you bought it. So getting cash out might be an issue from either lender.

 

[sam_gordon]

The two escrow accounts will wash out, so nothing to be concerned there. However, getting cash out might be an issue. You've only been in your home a few years so you have not built up much equity in it yet. I cant imagine the value of your home has risen much since you bought it. So getting cash out might be an issue from either lender.

Actually, we've been in the house 10 years. 3 1/2 years ago, we refinanced to a lower rate. The only question is whether the house has increased in value from 10 years ago, decreased, or stayed the same.

 

[HsvTeacher]

Actually, we've been in the house 10 years. 3 1/2 years ago, we refinanced to a lower rate. The only question is whether the house has increased in value from 10 years ago, decreased, or stayed the same.

We just refinanced last month, and that was our biggest concern. One bank suggested having a real estate agent look at our house and giving it a value based on comps in the area. We chose to bite the bullet and paid for the appraisal. It was $400, if I recall correctly. Our local banks and credit union wouldn't go forward until the appraisal was complete.

We ended up having a lot of equity because we've been in our house for 12 years, and we bought it at a great price. We also put 20% down when we purchased. With our refinance, we are still below the 80:20 ratio. However, the bank we refinanced with said that most homes come in valued below what the owners are expecting.

Forgot to add: We refinanced in 2006, and our house value decreased by about 20%. (And we live in an area that was not widely affected by the real estate bubble.)

 

[sam_gordon]

We just refinanced last month, and that was our biggest concern. One bank suggested having a real estate agent look at our house and giving it a value based on comps in the area. We chose to bite the bullet and paid for the appraisal. It was $400, if I recall correctly. Our local banks and credit union wouldn't go forward until the appraisal was complete.

Right. I'd like to only pay the appraisal fee to one of these companies. How do I select which one?

We ended up having a lot of equity because we've been in our house for 12 years, and we bought it at a great price. We also put 20% down when we purchased. With our refinance, we are still below the 80:20 ratio. However, the bank we refinanced with said that most homes come in valued below what the owners are expecting.

We also have had 20% down through the original mortgage, & refinancing. I did go onto a local realtor's page and looked for similar houses (3 bds/2 bath, etc.) and the ones I see are WAY higher than what we 'need' (ie: the loan would be 65% of the "value"). So we're probably OK. I just wish I knew a way to know for sure without spending $400.

 

[HsvTeacher]

Right. I'd like to only pay the appraisal fee to one of these companies. How do I select which one?

We also have had 20% down through the original mortgage, & refinancing. I did go onto a local realtor's page and looked for similar houses (3 bds/2 bath, etc.) and the ones I see are WAY higher than what we 'need' (ie: the loan would be 65% of the "value"). So we're probably OK. I just wish I knew a way to know for sure without spending $400.

We went with the bank that had the lowest rates. They also had the best reviews.

Unfortunately, there is no way to know for sure until you pay to have the appraisal. (We debated about it for a couple of weeks so I know exactly how you feel!)

When comparing houses/values, make sure you only use houses that have actually sold. (Zillow was way off on our house.) Also, the appraisers use very detailed programs to get accurate values. If you don't agree with their values, you can have them pull more comps to see if you can get a higher value on your house.

 

[sam_gordon]

We went with the bank that had the lowest rates. They also had the best reviews.

Where did you go for the reviews?

 

[HsvTeacher]

I googled the bank names, and each bank that we were considering had multiple sites with ratings. We also asked around with friends and coworkers.

 

[clutter]

The woman in option 2 says we can only get cash back if our house appraises for enough.
The guy in option 1 says our house should appraise just fine.

Both banks are actually saying the same thing, the first is giving you the fact, the second is giving you his opinion. With a cash-back refinance, the total amount you borrow has to be below a certain LTV ratio. How much do you want to borrow and what is the ratio? You will then know how much your house needs to appraise for. If you want to borrow $100,000 and have to have a ratio of 65% (I don't remember the ratio, but it's regulated so it should be the same for both banks), your value must be greater than $153,846.

Your appraised value has absolutely nothing to do with what you paid for your home when you bought it. It has everything to do with what price your newest neighbors paid. Start with the one on Zillow. Compare that house to yours. Same model? If not, then look at the price and see if you can make some mental adjustments for size, condition. (How much more would you be willing to pay for a garage or two or another bedroom?) If it's smaller than yours and sold for $165,000, you are probably fine. If it sold for $250,000 and is same size or only slightly bigger, you are also fine. But you may want to do more research, especially if it's not easy to figure out.

Do you have addresses of some of the recent sales? Does your county/city have on-line assessment records? If they do, chances are they have the sales prices online. If not, do you know a realtor? You can ask them to run the comps (recent sales) for your neighborhood. They will give you more information to evaluate the prices that houses are being sold for so you can get a feel for yours. Your main concern is that your house will appraise for more than that target value.

 

[lost*in*cyberspace]

Keep in mind that it is a given that whoever handles your refinance will sell your loan, probably within a month or two of your refinance, so I don't think this should be an issue in deciding who to go with.

 

[sam_gordon]

Both banks are actually saying the same thing, the first is giving you the fact, the second is giving you his opinion. With a cash-back refinance, the total amount you borrow has to be below a certain LTV ratio. How much do you want to borrow and what is the ratio? You will then know how much your house needs to appraise for. If you want to borrow $100,000 and have to have a ratio of 65% (I don't remember the ratio, but it's regulated so it should be the same for both banks), your value must be greater than $153,846.

Your appraised value has absolutely nothing to do with what you paid for your home when you bought it. It has everything to do with what price your newest neighbors paid. Start with the one on Zillow. Compare that house to yours. Same model? If not, then look at the price and see if you can make some mental adjustments for size, condition. (How much more would you be willing to pay for a garage or two or another bedroom?) If it's smaller than yours and sold for $165,000, you are probably fine. If it sold for $250,000 and is same size or only slightly bigger, you are also fine. But you may want to do more research, especially if it's not easy to figure out.

Do you have addresses of some of the recent sales? Does your county/city have on-line assessment records? If they do, chances are they have the sales prices online. If not, do you know a realtor? You can ask them to run the comps (recent sales) for your neighborhood. They will give you more information to evaluate the prices that houses are being sold for so you can get a feel for yours. Your main concern is that your house will appraise for more than that target value.

Keep in mind that it is a given that whoever handles your refinance will sell your loan, probably within a month or two of your refinance, so I don't think this should be an issue in deciding who to go with.

Understood both points. The ratio is 80/20. As long as we either have 20% down or 20% equity, no problem on the loan. If we don't have the 20% in, we have to pay mortgage insurance. We don't want to do that.

I'd feel better knowing what the house would appraise for, because I know how much we want to borrow. Then I can just decide based on % rate of the loan. I just don't want to commit to a lender (broker) based on the rate they tell me, then, after we've spent $$ for the appraiser, before we close, they say 'oh, the rate has gone up'. That's probably just a chance we're going to have to take.

 

[HsvTeacher]

Once you sign the form that says you accept the appraisal report, you will sign a loan application that will lock in your rate. You should be able to close in enough time that your rate will not change.

BTW, you own the appraisal report so you could take it to another bank/credit union if you don't like the rate. The reports have an expiration date.

 

[sam_gordon]

Once you sign the form that says you accept the appraisal report, you will sign a loan application that will lock in your rate. You should be able to close in enough time that your rate will not change.

BTW, you own the appraisal report so you could take it to another bank/credit union if you don't like the rate. The reports have an expiration date.

THAT makes me feel better! Thanks!

 

[Judique]

Once you sign the form that says you accept the appraisal report, you will sign a loan application that will lock in your rate. You should be able to close in enough time that your rate will not change.

BTW, you own the appraisal report so you could take it to another bank/credit union if you don't like the rate. The reports have an expiration date.

Usually you will get a 60 day lock on the rate.

A note on which bank to go with: One has a slightly higher interest rate with 1200$ in closing. Are you sure that is your full closing? Looks like discount points only to me.

The other has the lower rate with a higher closing cost or point cost.

I am doing a refi as well right now, and I wanted the lowest payment for the least amount of money paid for the loan. I determined that I would be in my home for at least another five years, so higher costs with a lower payment would eventually pay off. I am also shortening the term of my loan. Truthfully, I've been asleep on the rates for a few years and should have refied long ago.

The appraisal - you may own it but the second bank may not accept it. It's their call.

I would get both banks to give a good faith estimate and decide based on the best rate lock for me. Lower payment or less increased principal after adding in the closing costs, depending on how long you intend to keep the loan? Sounds like you have the equity depending on what your cash out is. Good luck!