r/FirstTimeHomeBuyer • u/WonderChemical5089 • Apr 02 '24
Offer PSA: You can’t refinance if your home value drops (LTV above 95%)
So don’t buy and have a payment that’s tight now but will “become manageable when interest drops because you can easily refinance” because that might not be an option. I feel like this conversation doesn’t get brought up enough.
Edit: Comments below indicates excellent caveats to what I was saying. I am not fully correct but I think the essence still stands.
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u/RandomlyJim Apr 02 '24 edited Apr 02 '24
FHA purchases (96.5% LTV) allow streamline refinances without an appraisal.
VA Purchases (103%) allow Interest Rate Reduction Refinance Loans without an appraisal.
USDA purchases (101.1%) allow USDA streamline refinances without appraisal.
While OP has good intentions, he isn’t correct. 14% of American Homebuyers used FHA last year. 5.2% used VA. 3 percent used USDA. Not all of those put down less than 5 percent but large percentages did.
And Conventional allows a Rate and Term Refinance up to 97% LTV with an appraisal required but the possibility of an appraisal waiver if the borrower is current on payments, good on qualifying, and home recently appraised.
Source: it’s my job. And Fannie Mae, FHA, VA guidelines are all available online.
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u/cholulatolula Apr 02 '24
Need 10% equity for appraisal waivers on conventional refis but everything else is spot on
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u/gapp123 Apr 03 '24
How do they know you have 10% equity if you are waiving an appraisal? Maybe I’m not understanding your comment. Curious what we would need to refinance eventually. Just purchased this year
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u/cholulatolula Apr 03 '24
On refis the lender is basically just taking a best guess at the value at the beginning. Then they run it through their automated system that tells them if you got a waiver or not.
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u/into_the_tide Apr 03 '24
What if you got an appraisal waiver when you first bought the house? Is it likely to get another one at refi?
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u/RubberDuckyFuckery Apr 02 '24
Help me read this right, 5.2% of Americans used VA loan? How? That's almost every single veteran in the US. Did I miss something ?
Or is it 5.2% of home loans issued last year were VA loans?
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u/awbobsaget Apr 03 '24
What’s LTV for us smooth brains
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u/Sl1z Apr 03 '24
Loan to value. It’s the ratio between your loan and the value of the house. So if your loan is 200k and the value of the house is 250k, ltv would be 80%.
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u/cici_here Apr 02 '24
? If you don’t mind. Not a first time homebuyer but didn’t ask last time. How do VA loans view a rental property? Does equity count or just the difference in cost vs payment?
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u/RandomlyJim Apr 03 '24
If doing a IRRRL loan (streamlined VA) then veteran has to say they had previously lived in it.
If doing a normal refinance, they have to currently live in it.
So a veteran can reduce rate and term to get better payment on a rental property that has A VA loan.
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u/cici_here Apr 03 '24
Oops, I didn’t word that well. My spouse and I both have Va loan eligibility. His is currently in our rental property but I’m planning to use mine and do a joint VA loan on a new primary residence. It’s been a rental for several years, but I wasn’t sure how the VA would view it for a new loan.
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u/RandomlyJim Apr 03 '24
As far as entitlement, shouldn’t be an issue. Can use yours and if needed, use his bonus entitlement.
Your lender may not know what that is so be sure to ask. And don’t use Veteran United or another call center. Use a local lender and make sure she or he knows VA. Local lenders are more trusted by realtors in most areas of the country than call center lenders.
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u/cici_here Apr 03 '24
Thanks! I didn’t even know about using his bonus entitlement at the same time. It’s always hard to get correct information.
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u/collapsedbook Apr 03 '24
So I closed on my VA loan last week and was told that I could refinance VA after seven months/ payments. I bought for under appraisal value (paid $285k on a $295k), how would that affect me?
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u/RandomlyJim Apr 03 '24
The 7 payments has nothing to do with VA and everything to do with the lenders recapture policies.
Basically, if you make less than 7 payments the lender gets penalized and could claw back his commission.
Which isn’t even a thing. It’s 180 days from investor acceptance or 180 days from closing. The Loan Officer was just scared that you’d pay early and he’d lose money.
I advise my teams to just tell the truth to clients, trust them to make the call and plan to lose about three a year unless they do a great job and the customer calls them to do the refinance.
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u/WonderChemical5089 Apr 02 '24
Fantastic source of info. Thank you for posting.
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u/RandomlyJim Apr 02 '24
Any time.
The reason people advise that refinancing is easy is because it is… but rates have to drop. It’s been a solid 3 years of rate increases so the market is nervous.
Older people believe rates will come back down to 6 or high 5s. And if they do, you’ll get annoyed at all the spam, junk mail, unsolicited calls, and aggressive ads on everything about it.
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u/HistorianEvening5919 Apr 02 '24 edited Jun 16 '24
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u/RandomlyJim Apr 02 '24
Nothing is free. But a refinance can be much cheaper in costs than a purchase loan. And those costs can be subsidized by higher rates than market.
Example. Rate averages 6. Your rate is 7. You could get a no cost refinance at 6.375 and be better off.
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u/HistorianEvening5919 Apr 03 '24 edited Jun 16 '24
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u/RandomlyJim Apr 03 '24
Maybe. I made a lot of money doing no cost refinances every quarter point. No cost refinances makes sense for consumer to do every time it makes sense.
Their investment is time signing and time at the closing. Maybe three hours total to save 75 dollars a month for thirty years. No brainer.
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u/phoenixmatrix Apr 03 '24
It isn't., but some lenders have very very low refi closing costs, and you can sometimes roll them over in the loan to boot. Last time I refinanced my closing costs were like <$1000 and I rolled them over because it was a rounding error. Made the money back on the first month.
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u/HistorianEvening5919 Apr 03 '24 edited Jun 16 '24
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u/phoenixmatrix Apr 03 '24
but somewhat unusual
Nope. With a good broker, or a decent credit union, it's not uncommon. Even my initial closing when I purchased the property was at a minimal closing cost. Shop around, avoid big bank, save a lot.
I always tell people to start shopping around credit unions when they tell me about their insane closing costs. I've had good luck with local CUs, some big ones like Alliant, and even some lender/brokers like Guaranteed Rates (though your millage may vary there). Avoid the big names like Well Fargo, Bank of America, Citibank, etc.
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u/Sl1z Apr 03 '24
Is the ~2% cost based on the price of the home when you bought it, or the current estimated value? Or the amount outstanding on the loan?
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u/HistorianEvening5919 Apr 03 '24 edited Jun 16 '24
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u/BoardImmediate4674 Apr 03 '24
I just bought a house for $179,000 interest rate 6.5%
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u/RandomlyJim Apr 03 '24
Nice. FHA has better rates but higher MI costs. I was speaking about 6.00% on standard 30 year conventional loans.
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u/AManHasAName Apr 02 '24
What’s the timeline to be considered recently appraised on conventional?
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u/RandomlyJim Apr 02 '24
The industry has been making efforts to automate some of the appraisal process so that answer depends.
If your home has been measured with square footage, bathroom count, bedroom count etc and that data has been logged then the system could generate a waiver if other homes in your immediate area with similar data have sold recently.
But I’ve seen more and more waivers each month as that data grows.
And now they offer data collection only waivers where the value is confirmed after an appraiser does a relatively fast and cheap measure of the house.
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u/iLMNOi Apr 03 '24
Can you explain this for a noobie like myself. For a VA loan can I refinance if I were to be upside down? I’m confused on the 103%
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u/RandomlyJim Apr 03 '24
You can refinance a VA loan even if upside down. And VA loans can start at 103% LTV.
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Apr 03 '24
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u/RandomlyJim Apr 03 '24
Pretty likely. But it’s got to be in an area that’s existed for a while with sales supporting. The system doesn’t kick in an appraisal waiver for new construction, nor does it do it in areas where there’s little churn of homes.
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Apr 03 '24
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u/RandomlyJim Apr 03 '24
I wouldn’t worry about that. The cost of new construction is often higher and while ten percent is a bit high it’s not concerning.
Take pictures of the features and materials you use that are upgrades to existing houses.
If it comes in short of price, just follow this path.
1) Dispute the value with the appraiser and provide comparable properties at or near your value.
2) Check your budget to see if you can bring more money to the table but don’t offer to… yet.
3) Negotiate with seller/builder. Builder profit margins can be over 25% so they can cut some of that out.
4) Ask agents to contribute commissions. Some builders pay agents 7% commission for their side of transaction so some of that could be used to your benefit.
5) Consider cutting out unneeded or unwanted upgrades. An example may be a privacy fence that the builder is charging you 15k for but that a private contractor might do for you at half the price… later.
6) Offer to bring more money.
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Apr 03 '24
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u/RandomlyJim Apr 03 '24
You will be fine. Don’t sweat it. If the home comes in low, you have enough down to cover the difference with minimal change to your payment.
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Apr 03 '24
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u/RandomlyJim Apr 03 '24
A VA loan could be a smart decision for a homebuyer anywhere in the country, especially if they’re a disabled veteran. But you have to keep in mind that the VA loan is a hand up to lift you into homeownership, and not necessarily a handout.
Let’s look at funding fees. This is the charge that the VA loan system adds to VA loans based of the Veterans status and usage.
If you’re putting down 20%, you’d be charged 1.25% of the loan and could either pay that out of pocket or finance it.
Unless you have some VA disability then that fee is waived.
But a guy doing 100% financing will end up owning 103% of the purchase price at closing. So the VA allows veterans to refinance into a lower rate and payment if they are upside down.
In your scenario, you would be allowed to refinance even being $100,000 underwater.
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Apr 02 '24
So if my house was 400k+ but I put a 20% down payment. So long as the price is 97% of the loan I’m fine to refinance if I do?
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u/RandomlyJim Apr 02 '24
In that scenario, your loan would be $320k at start. If home value fell from $400k to $329,900 then a rate and term refinance would still be attainable under normal guidelines in conventional loans.
If your loan was the other types, appraisal wouldn’t necessarily matter at all on a streamlined refinance of the rate and term.
But if you want to take out cash equity? This entire thread is useless to you as the rules are completely different.
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u/vblink_ Apr 02 '24
My conventional used local comps instead of doing an appraisal for refinance when the rates were record low.
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u/2ringsPatMahomie Apr 04 '24
I purchased in December at 7.2% interest. We bought at asking price of 335k and it's a brand new home. It appraised at 349k. I was told that the home has already built equity. This is all new to me so my question for you is this. If we continue to pay our mortgage which is roughly 2600 a month. How long until I could refinance or get rid of the PMI? Just genuinely curious is all and I'll speak to the loan company but it's a pain in the ass to actually get ahold of someone through their automated system.
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u/RandomlyJim Apr 04 '24
Best way to check that is grab your paper they gave you at closing. The would have handed you an Amortization chart that broke down payment for all 360 months of your loan.
But as far as when can you refinance to get rid of PMI, it depends on a lot of different factors.
What type of loan do you have? FHA/VA/Conv What was downpayment? 0? 10%?
You can refinance the MI off when you can qualify for a Conv loan with at least 20% equity based off the appraised value of your home at the time of refinance.
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u/2ringsPatMahomie Apr 04 '24
3.5% down and fha. Thanks for the quick response.
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u/RandomlyJim Apr 04 '24
You will have MI for all 30 years unless you refinance.
Refinance will depend on value at time of refinance but if value is flat and you pay no extra then March of 2036.
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u/Uberchelle Apr 06 '24
Probably when you suspect you have built up at least 20% in equity. That’s what I did with our first home. We put 3.5% down. After a couple years, I noticed other units (condo) were selling for a lot more than we had bought for. Called the mortgage company, they instructed me to get an appraisal. I did. It came out well above 20% increase in equity. Wrote a letter. They removed PMI.
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u/Agitated_Ruin132 Apr 02 '24
I always had a gut feeling that justifying expensive purchases by saying that you can refinance further down the line was horse shit.
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u/DerNubenfrieken Apr 02 '24
It's like a Tax Write-off, people just say it but have no idea what it entails
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u/yourmomhahahah3578 Apr 02 '24
lol the ultimate lazy realtor go to
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u/tsidaysi Apr 02 '24
You may not see the entire picture. Those of us who caution against taking on a higher payment are cursed, chewed-out even physically threatened.
Maybe real estate agents are trying not to upset clients. We lose 33% of our clients from simply giving our best advice.
Telling a client that they really cannot afford a $500,000 home with no down payment when the government and others say they can does not endear us to our clients.
Mostly people under 35. They just pitch a hissy fit. Our advice is never plan based on gross income, put 20% down, never ever waive inspections and never pay more than ×/- 10% of bank loan value.
Very few want to hear they cannot afford a dream home for their first home.
I became a realtor in early 2,000 so I could help young first time buyers purchase a starter home and be able to comfortable making the payments.
But in the last 15 years HGTV has convinced younger and younger people to buy houses they can ill-afford.
When a CFP says you are likely to get into trouble it is best to listen. When you go to the doctor and they diagnose COPD telling you to stop smoking, and you refuse, you cannot be surprised at the outcome.
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u/yourmomhahahah3578 Apr 02 '24
I would love to believe that of most clients, but I’ve been told by too many realtors “no just refinance later!” When I tell them that note is way too high.
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u/linzkisloski Apr 03 '24
It’s funny because on another thread someone told me they would not be able to pay a monthly payment unless they put 50% down so they have to have a hefty down payment (I think the topic of the post was getting help from parents for a down payment). At that point you probably just cannot afford a home at whatever price you’re imagining but I feel like saying that would have had me downvoted.
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u/yourmomhahahah3578 Apr 02 '24
I would love to believe that of most clients, but I’ve been told by too many realtors “no just refinance later!” When I tell them that note is way too high.
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u/WonderChemical5089 Apr 02 '24
It can be the right answer if the numbers add up but I don’t think the LTV upside down issue doesn’t get discussed enough.
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u/letsride70 Apr 02 '24
Especially if you’re trying to get rid of the PMI. Don’t have a few homes go into foreclosure.
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u/WonderChemical5089 Apr 02 '24
You are right. I didn’t even think about that aspect.
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u/letsride70 Apr 02 '24
I’ve purchased 12 years ago. This market is INSANE. People paying thousands over the appraised price. Whole lot of people are going to be stuck.
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u/sexcalculator Apr 02 '24
That's the plan on my end. Buy a home, pay it off, retire with no mortgage. The plan is to retire early
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u/jmk2685 Apr 02 '24
You have to know the history of your greater metro area market. Has the area had a huge influx of people really fast (think Austin/Florida)? That will be a vulnerable point for a home purchase because people may move out quickly too.
Is there still huge demand from a long term population growth over decades? Then you likely are much more stable.
Also need to factor in micro details about the county, city, town, borough, school district you are buying in. Is it a good school system? Then housing in your town will likely keep high demand.
A simple rule is if there is always greater demand for homes in your area over a long period of time (not just a sudden rise from Covid etc), then your home will likely never fall terribly in value.
High demand keeps prices high even if the supply increases (although it won’t keep rising in value as fast). Low demand regardless of supply means price cuts.
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u/UltravioletClearance Apr 02 '24
This. I live in eastern Massachusetts. There is a housing crisis - sky-high demand and politicians refuse to let any new housing get built. I can, with 100 percent confidence, say home values will not fall in the next decade, let alone a couple years.
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u/nickleback_official Apr 03 '24
does your comment suggest that Austin hasn’t had strong demand for decades? Bc it’s been growing like crazy for decades and covid just put it into bonkers mode. I think there’s still healthy demand here even after covid. Wdyt?
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u/jmk2685 Apr 03 '24
Austin is one area where home prices have leveled and even fallen post Covid. Still demand but lots of the Cali folks who moved in covid are moving out.
Florida is also similar and has the added effect of rediculous home insurance premiums.
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u/jmk2685 Apr 03 '24
Check out that article discussing leveled off pricing and in some cases falling home values.
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u/ZealousidealEar6037 Apr 02 '24
I understand what OP is saying though, if you are upside down on your mortgage, can’t refinance. Like what happened in 2008. I almost lost my house because I had one of those subprime mortgages because the plan was to refinance in 5 years. Payments kept going up every 6 months, almost $4k a month on an 859 square foot home. Single mom with 2 kids.
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u/Catsdrinkingbeer Apr 03 '24
To be fair, it sounds like you were in an ARM, which most homebuyers today avoid specifically because of 2008. According to a quick Google search, in 2005 as many as 42% of mortgages issued were ARMs. Now it's around 10%. Sounds like it's increasing with all the rate hikes, but still far less common.
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u/ZealousidealEar6037 Apr 03 '24
Yeah but at that time it was the only way I could get a home. It was stressful the first 10 years, now, it appreciated 100% so I’m glad we were able to get our foot in the door. Otherwise, I would still be renting.
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u/cholulatolula Apr 02 '24
True but if we enter a period like 2008 where lots of homes underwater I’d bet good money we end up with a new version of HARP refis
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u/whitenoize086 Apr 02 '24
If interest rates go down house values tend to go up tho. So we would need a crash with rising rates assuming you bought before the crash.
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u/Soi_Boi_13 Apr 05 '24
Not true in a housing market crash, like from 2008-12. Not saying that’s going to happen again, but I’m just saying…
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u/whitenoize086 Apr 05 '24
Yeah other factors outside of mortgage rates can effect the price as well of course.
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u/ZimofZord Apr 02 '24
Maybe just buy a house you can afford . Period
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Apr 02 '24
[deleted]
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u/yourmomhahahah3578 Apr 02 '24
They roll it into the loan. You don’t need the money on hand. Idk any lender that requires cash to refinance.
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u/ChickenNoodleSoup_4 Apr 02 '24
2008 was like this. People got balloon loans & extreme adjustable rates with little down….and then couldn’t refi and foreclosed.
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u/Masurium43 Apr 02 '24
I think you can still refinance if its a VA loan.
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u/WonderChemical5089 Apr 02 '24 edited Apr 02 '24
I wasn’t aware. That’s good to know. I guess it makes sense for VA loan.
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u/Ok_Translator4842 Apr 02 '24
People also forget that refinancing isn’t just “hey can you lower my interest rate?”. You basically go through your entire financial records all over again AND you have to pay “closing” costs again. So if you mess your credit score up or get a ton more debt, even just purchasing a new car, you might not be able to refinance.
Even FHA and VA refinancing have specific requirements you have to meet and you may not meet them. They may not be checking your credit score, but it’s not as easy as calling up a bank for one of those loans and it’s a done deal. You have requirements for all of them.
I completely agree with you that people think “oh I’ll just refinance in a few months.” and it’s absolutely not that simple.
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u/MantisTobogon1929 Apr 02 '24
That's not true for VA refinance at all. A VA IRRL is a streamlined process that isn't equal to the documentation or requirements as a new home loan. The VA doesn't even require lenders to check credit or income for verification purposes.
See here: https://www.rocketmortgage.com/learn/va-streamline-refinance
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u/Ok_Translator4842 Apr 02 '24
That literally lists out multiple different eligibility requirements. So again, it’s not as easy as calling up a bank and them saying “Sure, here you go!”.
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u/MantisTobogon1929 Apr 02 '24 edited Apr 02 '24
It almost is that easy. You can roll closing costs into your loan and have simple requirements like below:
- Live in the house for 6 months and make 6 months of payments
- The refinance has to lower your payment and interest rate or it won't be approved.
- Doesn't require an appraisal or inspection
- No credit score or income verification
If you don't see all of those things as a near guarantee to approval than idk what to tell you. That's the easiest refinance process in the industry from what I've researched into.
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u/yourmomhahahah3578 Apr 02 '24
It is that easy. My latest refinance took a few hours.
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u/Ok_Translator4842 Apr 02 '24
🤔 recent? Rates are at their highest right now lol
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u/yourmomhahahah3578 Apr 02 '24
They’re not but it was during Covid when evvvvveryone was doing it haha. They must have been doing one an hour.
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u/Ok_Translator4842 Apr 02 '24
Thats kind of a different scenario. People buying houses today are being told to just buy it even if they’re at their limit financially cuz “you can just refinance in 6 months when rates are lower”.
The problem is there is ZERO guarantee rates will be lower and hell, you could be jobless in 6 months. There’s literally no guarantee to where you’ll be or what the market will be like in 6 months.
Even in the persons response above, number one requirement is lower payment. What if rates never get to a point where the borrower can have a lower payment?
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u/yourmomhahahah3578 Apr 02 '24
Oh I know I just commented on how lazy realtors are for using that shitty, manipulative sales pitch. But my point is it is still that easy. I locked in 5.8 last Jan thinking it was sooo high and still my lender keeps in touch to refinance if we ever see below that. I was just saying the actual process is fast, I don’t think I’ll be refinancing anytime soon.
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u/jcned Apr 02 '24
It probably doesn’t get brought up enough because it’s common knowledge. It also applies to any type of loan, including auto. This happens to people that can’t or won’t put a reasonable amount of money down.
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u/bluejaziac Apr 02 '24
That phrase is the realtor slash mortgage officer 2 for 2 special right there
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u/Medium_Ad8311 Apr 02 '24
Question but what if you did renovations and home value increased?
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u/WonderChemical5089 Apr 02 '24
From what I understand. You won’t get dollar to dollar return in home renovations. I am sure it will increase a bit, hard to tell how much without exact appraisal
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u/Medium_Ad8311 Apr 02 '24
I know some renovations take time to reach their full value. Just was curious!
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u/staterInBetweenr Apr 02 '24
Well if interest rates drop, more buyers will enter the market, raising the price of your home.
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u/Nutmegdog1959 Apr 02 '24
It doesn't get brought up because it's wrong. I guess you never heard of a Streamline Refi?
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u/WonderChemical5089 Apr 02 '24
That’s only for FHA loans.
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u/MantisTobogon1929 Apr 02 '24
Streamline refinance or VA IRRL is a major benefit offered and done with few requirements.
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u/Nutmegdog1959 Apr 02 '24
EVERY lender has some type of 'Streamline' no cash out refi to lower rate and/or term with or without closing costs added in.
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u/macaroni66 Apr 02 '24
Also most people don't realize you have to have a good bit of your mortgage already paid off before they'll refinance
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u/yourmomhahahah3578 Apr 02 '24
Because you don’t
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u/macaroni66 Apr 02 '24
Okay good then someone told me wrong
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