Hi guys. Most of you may not know me, so here is a quick backround:
I am 22 years old and just purchased my first home at the beginning of 2016 (Our current residence) with my older brother.
We financed through FHA at 3.8%, and a monthly PMI of $260 for the life of the loan (versus a conventional where it drops off at 20% equity)
We want to refinance out of FHA as soon as possible. It was a good way to get into a home early on (as opposed to trying to save up for a bigger down payment) - but now we are looking for ways to cut costs.
I/my brother have been toying with the idea of selling our excess toys - two motorcycles - and hitting that 20% equity mark by also getting an updated appraisal (our home value has gone up by about 20K since purchase) - is there any certain way to go about this, certain lenders you would suggest to refinance with?
I'm looking at the best ways to cut costs on our monthly mortgage so any advice from you guys would be appreciated!
depends on how much you will save per month, how long you will keep the property, how much the refi wil cost you - i.e. the payback period.
most people put 20% from the get go.
oh, and getting rid of "toys" is a step in the right direction.
the second step is cut off TV and video games. you get your life back when those things are off.
When I bought my current home and my previous home, we didn't have the 20% to put down. This was all prior investor mindset.
But when we eye'd the comps in our area and felt it would appraise high enough, then we refi'd to get rid of the PMI.
But yes, see how much it will cost you out of pocket.
@Aaron Bry , the usual recommendation around here is that even though you end up going with FHA because of having less than 4% deposit, the property that you buy SHOULD be sought for say 25% less than true market value, meaning that you would be gaining the extra necessary equity from day one - but just need to wait for the Lender's seasoning period before that extra equity is formally recognized (without the need to sell your "toys").
But if you've already paid full market value, then yes, save, sell, etc. until you come up with the 20-25% refi deposit that you were too impatient to save/sell for at the start. Cheers...
We paid a little under market value for the home - definitely not 25% under, though.
George: I have never had cable TV in my house. Just a flatscreen with a DVD player!
If home prices rise enough we have talked about selling - is it worth refinancing if we sell in 2-3 years?
It depends on the closing costs, but most of the time when I looked it seemed to break even from about 22-30 months. Do the math yourself. But if you're going to move in 2 years and it costs more in closing costs than you'll save otherwise, just keep paying the PMI(or higher %).
@Aaron Bry It might be worth checking with the lender who financed your loan to see if they'll do an FHA Streamline for a lower rate. Interest rates have probably dropped a bit since the beginning of the year. You won't be able to get rid of the PMI, but if you can get a lower rate, it might help get your expenses down. Streamlines are awesome because you don't need an appraisal and there's very little qualifying compared to what you went through to get the loan.
Thanks for the suggestion Mark! I will look into that!
Looking back I do regret going FHA and not doing 20% down to eliminate PMI, but I'll chalk it up as a learning experience and on the positive side, I'm still paying less to own my home than I was before renting an apartment.
Hi @Aaron Bry ,
If you're able/willing to sell toys and come in with funds during a refinance to drop PMI, I'd suggest getting the appraisal done first to see how much you'd need to pay it down by to eliminate PMI.
Instead of picking a number and paying it down by a random amount, or an amount based on your purchase price.
@Chris Mason - we are both willing and able to sell the toys. We both got the motorcycles for less than they could sell for now, so all is well.
It's just a question of if it is worth it or not. At the time of our home purchase, selling everything we had wouldn't have got us close to 20% down. Now, things are looking up with both of us getting raises and bonuses so that is why we are considering trying to get to that equity mark to eliminate PMI.
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