A couple of home refinance questions…

[80Westy]

Hello Mustachians, and thanks for reading my question.  I am sorry this post has grown entirely too long but hopefully it includes all the needed info to answer the questions!

I would like to refinance the mortgage of our primary residence.  We own no other real estate.  However, I have no idea what the home is worth and don’t want to spend the $450 appraisal fee (per servicer Chase) without first having a good idea of the value.  To allow a typical 80% LTV loan, it would need to appraise at $276,250.  There are two data points of what it IS worth – Zillow (on Mint) says $188k and the Chase tells me Fanny/Freddie? have a database that says value is $285k.  The Zillow value peaked at $240k in August 2014, which it had crept up to slowly over a few years (sorry, no hard numbers, just memory here).  Sometime in the fall, the Zestimate started dropping like a stone and leveled in November 2014 at the present $188k.  The local economy (Detroit suburbs) has been slowly improving since the valley of the twin auto bankruptcies in 2009.  This year was an very good sales year for autos (OEM performance still drives the local economy more than any other single factor), and no “bad news” happened that I remember to coincide with the Zestimate drop.  The immediate local area is considered upper middle class / borderline affluent, good schools, lots of lakes, etc., etc.  I cannot understand why the estimated value dropped 21% in a few months.

Purchase Price:  $318k December 2005.  20% was put down.

Current Loan is a HARP refi from May 2011.
Balance:  $221k
Rate:  5.375%
Terms:  30 years / fixed.  Already face-punched myself many times for this, should have gone to 15 year or less.

Verbal quote on re-fi loan:
3.375% for 15 years.  No idea about costs yet (in the mail).
This quote was given by Chase (servicer) after I responded to their mailing regarding refinancing.  I have periodically looked into refinancing but always get stuck at the LTV unknown.
I will shop around for better rates & costs, but the 80% LTV requirement is (I assume) gonna be the same no matter the lender.
   
Credit score is 753 per Mint.com

tl/dr:  how to figure home value without dropping $450 for appraisal?


The second question is how to bring cash to table at a closing to reduce LTV to 80% if appraisal is low?  I do not want to pay PMI, as we could be trapped paying for a long time if house value drops (once bitten...).  We have NO CASH ON HAND OUTSIDE OF 401K / TIRAs / HSA.  Any cash in excess of monthly expenses is put to CC debt, but month to month excess is highly variable -  I cannot put a number on it.  I have been working to reduce expenses, but that would take a separate post.  In any case, I should (or should I?) start paying down the principal by the same amount as the increased payment if the refi went through.

Assets
TIRA:  $330k, all cash since recently rolling over old 401k
401K:  $230k, most invested in 2035 target date fund
Loan to brother:  $6k.  Payments start in a year.  It is on a 0% CC. I only listed this as an asset because I believe banks do the same .  Wife thinks we’ll never get the money. 

Debts
Student Loans:  $4k at 2.3%
CC:  $12.8k at 0% (includes loan to bro)

Ongoing Savings:
401K is maxed out ($18k / year)
HSA gets $5500 / year, but this is spent.  The balance is around $3k most months, remaining steady with contributions and withdrawls.

Other financial info
I may receive a bonus in 1Q15 around $10k gross, but you never know.
Planning to pay for DD college starting fall 2015.  $15k/year given her current scholarships, more of which may come this spring, but you never know.

For bring money to closing, I am considering that it is actually not possible, a 401k loan, stopping 401k contributions, CC’s (seem to get lots of 0% offers and currently charge ~$3500/month paid in full), raiding the HSA (by stopping contributions) as possibilities.  None seem to be particularly good options.  It would help tremendously to know how much is needed to get 80% LTV.

If you made it this far, thank you again for reading about my situation.  I appreciate any advice you can offer!

[Cheddar Stacker]

A 2% interest rate drop would save you $200-400/month. Paying $450 to find out is such a small price. I say do it.

A 20% zillow drop is high, but they always drop in the winter when the market is less active because it's based on comparable sales which are limited and lower.

If your job is stable I would strongly encourage a 401k loan to cover any cash you need to drop to 80% LTV. Unless you lose your job they aren't a bad deal.

Lastly, consider a second quote and a 30 year term if you plan to stay there a while. I'm seeing 30 year rates at 3.675%. That would give you enormous cash flow opportunities to repay the 401k loan, save for college, and pay extra on the mortgage if you choose to, but i'd invest any excess rather than pay the debt early.

[MDM]

tl/dr:  how to figure home value without dropping $450 for appraisal?

You could make an educated guess by finding the sale prices of "comparable" homes sold "recently" in your "neighborhood".  The quoted terms can be defined differently, which leads to the differences in various value estimates.  Call your local (county or city) assessor's office to find out how you can tap into their records - in many places this is free.

The more unfamiliar this is to you, the better CS's advice to get a professional estimate looks.

[Weedy Acres]

Zillow estimates are junk.  Ignore them.

Here's how to do a DIY appraisal:
1.  Find all the houses that have sold in your neighborhood in the past 6 months to a year (the fewer there are, the farther you need to go back).  Don't go beyond your neighborhood/subdivision.
2.  Cull the list down to ones most like yours in square footage and age.
3.  Make adjustments to the sold comps for the things that differ from your house:  $20/sf for above-ground living space, $10/sf for finished basement space, $5K for more/fewer bathrooms, $2K for more/fewer garage stalls.
4.  Take the adjusted prices on the sold comps and average them. 

That should get you pretty close.  Appraisals are not perfect, because there are factors like condition of house, shape of lot, etc.   But the above will give you an idea.

[ShoulderThingThatGoesUp]

Here is how nonsense Zestimates are: I live in a neighborhood of "twin" homes, where the two sides of one structure were originally built identically, but they're separate lots and properties owned fee simple. Mine has 2.5 baths due to a renovation, and the "twin" doesn't. Yet my house's "twin" has the higher Zestimate.

[Spondulix]

I'm trying to remember when I refi-ed if they even asked for much more than tax returns and last few months of pay stubs. LTV was the real question. Have you checked the fees doing a refi with a local credit union?

You could also ask your lender if they have an estimate - I remember Wells Fargo had software they used for comps, and we looked at their numbers before doing the appraisal.

Also - are you dealing with a national refi department? Or are you dealing with someone at a local branch? (I found the process to be much easier doing it with a local on-site person though the bank. They actually didn't require an appraisal, which wasn't the case with the out of town office).

[frugaliknowit]

If Chase tells you Fanny/Freddie have a database that says value is $285k, that might be code that they are not actually going to do an appraisal, especially if you are just refinancing the balance.  They may just fill out some BS form based on the database and call it an appraisal for a "streamline" refinance.

It makes no sense that you are maxing you 401k while you have debt.

[MDM]

It makes no sense that you are maxing you 401k while you have debt.

Many would say that depends on the debt's interest rate, compared with the expected returns on the 401k.  For both sides of the story, see http://forum.mrmoneymustache.com/ask-a-mustachian/what-is-the-magic-pay-down-your-mortgage-rate/.

[Cheddar Stacker]

It makes no sense that you are maxing you 401k while you have debt.

Many would say that depends on the debt's interest rate, compared with the expected returns on the 401k.  For both sides of the story, see http://forum.mrmoneymustache.com/ask-a-mustachian/what-is-the-magic-pay-down-your-mortgage-rate/.

Yeah, I disagree with you frugaliknowit. He's paying no interest on the CC, and the mortgage and SL are low interest and tax deductible. The gains he can expect in the stock market, plus the tax deferral amounts should easily exceed the cost of carrying those debts.

[80Westy]

Thanks for the advice and encouragement to get this done.

Spondulix & frugaliknowit,  The Chase rep (national 800 number) tried to get me the agree to get the whole ball rolling which would result in an appraiser at my door by next Monday, so with Chase the appraisal seems to be unavoidable.  I will try your advice to visit the local branch which is 1 mile down the road to see if the story differs.

MDM and Weedy Acres,  Point taken on Zillow = junk.  A family friend who is an appraiser told me that Zillow was "pretty good, usually," so I was trusting it up to now.  One correction from the OP, the Zillow value peaked in Feb 2014, not August.  The same downward trend since February is shown in all estimates of the local area.  Maybe the Detroit garbage incinerator is relocating to the neighborhood?  Zillow is useful for finding sold comps, 3 of which are close to me but vary from 120-175 $/sf.  Next step is to try to understand the reasons for these variations. 

Zillow says my house is 1348 sf, which seemed low.  Using the house drawing that the previous owner/architect left, the main floor is 1310 sf and the lower level is the same, with the finished space totaling to 1970 sf.  A large portion of the lower level is at grade, and that portion is finished and has doors and windows (floor to ceiling in one room, normal 3' off floor in others), but that space is not included in Zillow.  Could there be some other technicality that would prevent this space being counted?  The remainder of that level is below grade without windows.

That leads me to a new question - will the scale drawing be enough to get the appraisal done at the correct square footage, or will I get the "county records say 1348" run-around? 

frugaliknowit, The 401k contribution is the one thing I have always done right (i.e. maxed out), and it scares me to reduce it.  Instead, I am working on reducing expenses to pay debt faster.  This gives us less easy money per month and helps focus on making those actual hard changes that save money each day.  Today, I took my homemade lunch to Taco Bell with my work friends.

Will post progress as it happens.  Thanks again for the help.