Author Topic: A little help? Refinancing a 5.5% FHA loan without 78% LTV  (Read 1837 times)

Mark

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A little help? Refinancing a 5.5% FHA loan without 78% LTV
« on: September 16, 2012, 04:35:53 PM »
I bought a house in July 2009 with an FHA loan. I was starting my second year of grad school and planned on renting two of the three rooms to friends. It has been working out well but Iíd really like to refinance, primarily to pay the lowest monthly payment.
Hereís my loan details and financial situation

30-year fixed loan
Original appraisal: 155,000
Original loan amount: 140,000
Current Payoff balance: 133,500
Current Zillow estimate: 108,000
Interest Rate: 5.5%

Total Monthly Payment: 1,055
   Principal: 182
   Interest: 615
   Taxes: 121
   Insurance: 76
   PMI: 61

Rent from roommates includes internet and utilities, which I pay for:
Internet: 45
Water: 35
Electric: 85 (avg over a year)

Total Monthly house stuff: 1,220

Monthly Income:
Salary: 1,920
Rent: 960

Total Income: 2880

Assets:
Index Funds: 17,500
IRA: 10,500 (9k was contributed by me, the rest is growth)
Savings: 2,500
Credit Score: ~740

After learning all kinds of wonderful things from MMM, Iíve been able to put between 800-1000 per month into maxing out my IRA and the rest into the index funds.

After another year and a half or so, Iíll be getting my PhD in an engineering field that has good job prospects. Salary probably between 70k-90k. I definitely plan on moving. Since the house will still most likely be underwater, I plan on renting out to other PhD students in my program. This is my primary reason for wanting to get the lowest monthly payment possible, so that the rent will cover the mortgage and other costs. Also, once I'm in the new job, I plan on paying down the house ASAP or selling if the prices come back.

I know I can do an FHA streamline refinance. There is no new appraisal so I donít need the 78% LTV. Unfortunately, PMI will increase to ~140. That would bring my total monthly mortgage (assuming 3.5% interest rate) to around 930 (down from 1055) which doesnít seem too great considering there will be fees.

My best plan so far that I know for sure I can do is throw the 17.5k from the index funds at the loan and then refinance. The new monthly payment would be 835 and after 5 years, the PMI will drop off and Iíll be at ~710.

What Iíd really like to do is somehow refinance with a normal, not FHA, loan and avoid the PMI. If a new appraisal turns out to be anywhere near the Zillow estimate, 78% LTV will take me several years to reach even if I empty my investments and throw everything I can at it. Is there any other way to do this?

Another Reader

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Re: A little help? Refinancing a 5.5% FHA loan without 78% LTV
« Reply #1 on: September 18, 2012, 08:15:33 AM »
Zillow is worthless for determinimg market value.  Their estimator is often 30 percent off the real value.  Zillow is especially unreliable if your house is not in a tract area and/or there have not been a lot of sales in the area. 

Since so much of the answer to your question depends on the market value of your house, you need accurate information.  In your shoes, I would call the agent that handled your purchase and ask for current comparable sales data and his/her opinion of the value.  Once you have an idea of what the appraised value would be, you can decide how to proceed.