refinancing

[y26]

I was reading some past posts about people asking about refinancing their underwater mortgage and seemed like the consensus is finding a lender will be tough. I'm in a position where i want to refinance to lower my monthly payment. Its for a multi family (3units) i rent out. Ive owned it for 6 years and have never been late and always steady income. 6 years ago i received a 30yr fixed at 7%, Well now looking at rates and even getting something in the 5 or low 6's would lower payment significantly.

So i went to a broker, and i anticipated, i could get a loan up to 110% but the values nearby were 155,00 and my balance is $232,000. So no go.

BOFA owns my current mortgage and i was wondering how successful would i be working with them to lower my rate since they own the mortgage. Again i have never been late and as of jan 2011 my wife and i had a credit score of 805 her and 790 me. I guess BOFA would have no incentive in helping me because i am not in distress. What are your thoughts?

[disneysteve]

I think you are absolutely right. No lender, including the current lender, is going to work with you. You are current and you are 80K underwater. Why would anyone lend to you?

I would just keep working at that loan to get it paid down to the point where you are no longer underwater.

[y26]

Just for piece of mind i'm going to speak to BOFA tommorrow. I need to hear from their mouth directly and not wonder what if. What an upside down world we are in right now. With having good credit i have never been denied anything. So it is frustrating to do things right and still get the short end of the stick. Co-workers joke with me and say stop paying that will get their attention but i value my credit to much to do that. Thanks for the input.

[cschin4]

I personally hate debt and don't have any. And, having that much debt would scare the bejeepers out of me. Personally, i would sell it.

[disneysteve]

Originally Posted by cschin4

Personally, i would sell it.

How do you suggest he sell it when he owes $77,000 more than it is worth?

[disneysteve]

OP, I'm very curious. How much did you pay for the property and how much did you put down?

[cschin4]

Originally Posted by disneysteve

How do you suggest he sell it when he owes $77,000 more than it is worth?

Sell for what you can and pay off the remaining debt. Lesson learned.

[disneysteve]

Originally Posted by cschin4

Sell for what you can and pay off the remaining debt. Lesson learned.

How would one go about financing that 77K difference? Can you get a personal loan for that much with no collateral?

Also, OP doesn't need to sell. He can afford the loan. He would just like a lower interest rate (understandably) but he is in no financial distress. Why take a 77K loss if you don't need to? Just keep making the payments you agreed to make and can afford to make until value equals loan balance and then you might consider selling if you want to get out of the deal.

[bjl584]

Originally Posted by cschin4

Sell for what you can and pay off the remaining debt. Lesson learned.

It's an investment property. It is a debt, but it also is generating a monthly income stream. Selling would be foolish as long as OP can afford the payment.

[y26]

I purchased the house in 2005 very high market paid $313,000 and mortgaged $250,000. I am not in distress and have steady income. My only gripe is i could really increase my income by dropping the interest rate. Which will free cash flow to put back into the property. That was all. I dont want to sell it because i beleive it could be decent income in the future. I'm 32 and have 24yrs left on it. My rents cover mortgage and the water bill. When things break i pay out of pocket and claim it on taxes. Its worked for me.

[cschin4]

Originally Posted by bjl584

It's an investment property. It is a debt, but it also is generating a monthly income stream. Selling would be foolish as long as OP can afford the payment.

Just because something is an "investment" property does not necessarily mean it is a good investment.

[disneysteve]

Originally Posted by cschin4

Just because something is an "investment" property does not necessarily mean it is a good investment.

True but if the property is cash flow positive, why sell it?

[bjl584]

Originally Posted by cschin4

Just because something is an "investment" property does not necessarily mean it is a good investment.

OP stated that he can afford the payment and that it is turning a small profit. The profit will increase as the note on the property is paid down. Selling does not make sense. It is a debt, but it an investment. Taking on debt is usually necessary with real estate investing. The name of the game is basically leverage and cash flow.

[disneysteve]

Originally Posted by bjl584

Taking on debt is usually necessary with real estate investing.

Dave Ramsey would disagree.

[bjl584]

Originally Posted by disneysteve

Dave Ramsey would disagree.

Yes.

Mr Ramsey hates all and any debt. Correct me if I'm wrong, but I think that it's okay to get a mortgage by his standards, but it has to be the 15 year variety.

[disneysteve]

Originally Posted by bjl584

Yes.

Mr Ramsey hates all and any debt. Correct me if I'm wrong, but I think that it's okay to get a mortgage by his standards, but it has to be the 15 year variety.

Yes, for your primary residence he says a 15-year loan with a payment not exceeding 25% of your monthly income.

For investment property, however, he says no debt at all. Pay cash or don't buy it.

Not saying I necessarily agree - just passing along his advice.

[y26]

I just wanted to update this post. My new year resolution was to call BOFA about refinancing my investment property. So yesterday i spoke to a mortgage person at my local branch. Based on the information he can see i would be eleigible to re-finance under Making home affordbale. Now,they use a home evaluater program which i think over valued my home. I have to question him more on that. Anyways these were the options i was given to refinance. I have 23yrs 6 mos left on current loan at 7%.

233,000 loan (roughly)
15yr 4.375 P.I.T.I 2237.00
25yr 4.75 1805.00
30yr 4.75 1691.00

Now the number above are estimates. Payment may even be lower considering the escrow money i have already and how that gets allocated.

My rental income total is 2274.00.

Now I'm honestly thinking about selling in the future. So if i look at 15 yrs ammortization the balance would be at the end of 2013 around 208,000. I think that would offer me the best result in selling.

What is everyone thoughts?

[Slug]

The 15 yr is razor thin on your profitability. Losing a tenant for even a month could start a cascade of problems. The other loans offer more flexibility and more opportunity to have cash on hand in the event of an emergency or fixing it up to sell it in the future.

Just my .02

[graceful]

Originally Posted by Slug

The 15 yr is razor thin on your profitability. Losing a tenant for even a month could start a cascade of problems. The other loans offer more flexibility and more opportunity to have cash on hand in the event of an emergency or fixing it up to sell it in the future.

Just my .02

ITA. My choice would be the 25 year loan. A lot can happen BEFORE you sell and you want that cushion.

[myrdale]

I am in the process of refinancing right now, hopefully closing Friday morning. So I am in a bit of a different boat than you but I am feeling some of the same effects.

Five years ago my house appraised at $108k when I purchased it. Two weeks ago it was $68k. I have been blessed and I have paid it down to $52k, but when they included they rolled the closing cost into the mortgage, it put me below the 20% equality of the home's appraised value. Luckily it is only a matter of about $2k that I will just pay at closing to avoid PMI.

It just really struck me that there are a lot of people out there who could profit so much by refinancing but can not because of how much home values have dropped.

I just have to believe that it really would be in your banks best interest to allow you to refinance from the stand point of negating risk. If you have a lower payment on the debt you already owe to them, it would be much easier for you to make the monthly payment and thus much less of a risk to them of you defaulting on the loan.

EDIT

For your last reply, I personally am of the opinion of going for the longest term possible to provide the lowest payment, again helping to negate risk. You then have the ability to save that money or pour it onto the loan. Again I have completely different circumstances than you but my payment including escrow stands to drop from about $780 to $370 per month. That's $400 additional I will have to pound away at the remaining principle. With the mortgage being the largest and only truly fixed cost in my budget it in effect doubles the size (or rather length) of my emergency fund. And lastly if I were to loose my job, I could afford the house payment working at McDonald's. (That is to say I would not have to have a job making $xx,xxx per year to pay my mortgage.

Lastly I have to believe that prices will go over the next few years. Between inflation and population growth, I have to believe prices will rise again.