Refinance current mortgage?

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Hi I have a mortgate of around 2 years old and is a 30 year fixed rate at 6.5%. With interest rates being slashed right now and house prices dwindling it would make a lot of sense to be able to refinance the mortgage at a much reduced rate, lower the monthly premium but still pay (ie overpay) the same amount each month to the mortgage company thereby paying of the principle faster and possibly ending up in a few years time with some equity back in the home. If I leave it as is the market is going down as fast as I’m paying off the principle and am therefore no close to actually owning my home. The other alternative to over paying is refinancing at a 15 year fixed rate loan as that seems to be giving me around the same monthly payment as I’m paying out now.
But the question is, with no equity in the house will my current (or even another) mortgage lender even look twice at refinancing (I understand that lenders are reluctant to give out loan to value ratios of higher than 70-80%)

I have a duplex. I rent one side and live in the other. I tried refinancing a month ago to take advantage of the low rates and got the “we can’t help you because your appraisal came in at 43% lower” than the value I gave them for the application. The appraisal came in at $ 207,000 and I gave them $ 360,000 (because it was appraised for that much 2 years ago). The appraisal was severely affected by other “like” homes in town that have foreclosed.

Now, we’re not in financial trouble – we pay our mortgage every month and have very little debt. Here are the facts:

Our combined income is about 140K annually.
Current mortgage: $ 2150 (rent covers $ 1100 of this amount)
Current balance on loan $ 271,000

Loan rejected!!! Okay… fine.

This really made me angry/sad/depressed. I thought this would put a damper on to our plans as I had originally intended to refinance from a 30 year to a 15 year in an effort to build equity faster. We also had planned on putting our side of the duplex for rent and purchasing another home (in a better neighborhood) to live and raise our kids in. The plan was to keep this duplex and rent it out for the length of the mortgage and hopefully sell it at the end of the 15 year loan and put the profit towards our children’s college education.

My question is: How am I affected by this loan rejection? If I wanted to purchase another home for ourselves – Will the lenders look at my current property’s loan/value ratio and say no to a new mortgage? I asked the lender that rejected our loan the same question and he said that the two property will have nothing to do with each other and that it would not affect us at all. I find it hard to beleive since they rejected my refinance attempt because of my current loan/value ratio. Why wouldn’t they look at my current property’s ratio when determining whether to give me another loan?

Given my situation…Would I have any trouble obtaining a loan for the purchase of a new home while maintaining my current?

Thanks in advance for your expert advice!

  1. Reply
    Bob D
    April 29, 2011 at 8:49 pm

    Your FICO score is needed or at least a good bad excellent. If you have no equity in the house then getting a refi would be tough. Your current rate isnt bad. You are not adding the cost of your refi into the equation. On the valuation of the house. knowing what market you are in would help. You need to talk to a professional in your area that you trust. Just because a loan officer is a sales person. Do some research on your own of the housing trends in your area.

  2. Reply
    April 29, 2011 at 9:19 pm

    It’s extremely important to understand that with a little time and the right approach getting the absolute best mortgage refinancing is not a huge problem.Companies/businesses that arrange financial products of this natureenter into some research and groundwork on your own because the Internet can equip you with an absolute pot of gold of very helpful data when it is essential that you get the best mortgage refinancing.

  3. Reply
    April 29, 2011 at 9:42 pm

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  4. Reply
    April 29, 2011 at 10:17 pm

    Yes, the amount of equity you have in your current residence (none, or upside down) will impact your attempt to purchase another home, but may not prevent it. Here is why:

    Last year, in an attempt to stop people from purchasing a new, nicer home at current market and then letting an existing, upside down home go back to the bank via foreclosure, the lending industry instituted some new rules. To prevent the “Buy and Bail” phenomenon, you must have 30% equity (or 25% for FHA) in your current home in order to use the rental income to qualify for the new purchase. If you do not have the equity, you can still buy a new home, but you must have sufficient income to qualify making both payments without the benefit of the rental income offsetting the expense of the rental. This is a problem for most people, but may not be for you. Most simply can’t afford to make both payments.

    There are four main factors the bank looks at to qualify you: Credit Score, Loan-To-Value, Debt-To-Income ratio, and Assets/Reserves (cash in the bank). Specific to the loan on the Duplex, the Loan-To-Value was your problem. On a new puchase, that property would be classified as an investment property, and the fact that it is upside down does not directly influnce the loan for the purchase.

  5. Reply
    peter s
    April 29, 2011 at 10:57 pm

    g’day ima
    we were in the same boat in qld oz.we bought 2 studio apartments in robina qld at bond university for $ 330,000,we tried to flog em, but were gunna blow $ 80,000,we were paying %10.9,we saw our financial advisor,spilled our guts,& told him the trouble we were in.instead of flogging those units we bought 2 townhouses,%100 from bank at% instead of owing $ 600,000 we ow the bank $ 1.2 mil,interest only loans,& equity of about half a million bucks on 6 properties.IF U BOUGHT THESE DUPLEXES FOR $ 360,000 & MORTGAGE IS $ 271,000 U HAVE EQUITY OF $ 89,000 MY ADVICE
    our combined income is $ 100,000 Aus

  6. Reply
    April 29, 2011 at 11:57 pm

    What you should be doing is talking with a financial advisor. While it may not be impossible, sounds to me like you would be taking on more than you can afford in the current situation.

  7. Reply
    April 30, 2011 at 12:27 am

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  8. Reply
    April 30, 2011 at 1:21 am

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  9. Reply
    April 30, 2011 at 1:58 am

    Your application for a mortgage loan and being rejected will not have an adverse reflection on your credit or credit report and will not adversely affect your ability to purchase a home in the future.

    You are ahead of the game. You are able to pay your mortgage each month. That is a good thing

    This is just a bump in the road, most all investments go through some type of adjustments sometime. This will not last forever. Your duplex will eventually begin appreciating in value soon. The worse part is coming to a close. All property values across the United States took a dip in the last few years.

    This did not ruin your plans just set them on the back burner for awhile, all is not lost.

    Even though you might not have been able to get a loan on your duplex, you could be qualified to purchase another duplex. In this real estate market houses are cheap, mortgage interest rates are the lowest in decades.

    This should be your focus now taking advantage of the real estate market, securing your family’s future. There are many sources of finding money to secure what ever you want to purchase.

    You were smart enough to figure out the duplex part, you should do that about two more times prior to the purchase of your dream home.

    I hope this has been of some use to you, good luck.

    “FIGHT ON”

  10. Reply
    Beverly S
    April 30, 2011 at 2:55 am

    I am a mortgage lender for the last 23 years. Your denial on the duplex will have NOTHING to do with purchasing a new home- as long as you qualify with income/credit & equity in the new home. You will need a lease for both sides of the duplex in order to be able to count the rental income. The only reason you were denied is because lenders can’t lend more than the appraised value. Good luck!

  11. Reply
    April 30, 2011 at 3:27 am

    It sounds like your income / debt numbers are good and should not impact your purchase of another place .

    Also , many loans allow for ‘extra’ payments without penalties .

    You can always put that extra cash onto your principal ,
    It does Not have to be an official 15 year , just make extra payments and it ALL goes to principal .

    About the 2nd loan , if the first is fully ‘performing’ and if you lined up the 2nd renter , the next ‘owner occupied’ loan should flow

    Not all lenders think alike , check with your bank , your credit union and your broker .
    ( I actually get my best rate from the brokers banking division ! )

    good luck


  12. Reply
    real estate guy
    April 30, 2011 at 4:26 am

    in directly, the value of the old house will NOT effect you getting a loan on a new house.

    HOWEVER, you will need to be able to afford BOTH the old and new mortgage. The lender will NOT!!!! count the rental income on the old house to off set your old mortgage payment. Here’s why. The new rules are that in order to count rental income, you MUST have at least 30% equity in the old place, or the full mortgage payment will be counted as a monthly expense – the same as a car payment. The reason is that people were saying they were renting the old underwater place, get a new mortgage and then walk on the old place.

    I’m surprised that a “lender” like Beverly S didn’t know this.

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