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 I’d really like to refinance, primarily to pay the lowest monthly payment.
Here’s 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, I’ve 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, I’ll 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 don’t 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 doesn’t 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 I’ll be at ~710.
What I’d 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?
