Author Topic: Housing woes, what to do next?  (Read 6895 times)

jsloan

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Housing woes, what to do next?
« on: October 12, 2012, 07:40:31 PM »
Hello everyone,
As an update to our previous post here, we decided to empty out our investments for the down payment on our twinplex and we now have a great rate and a positive cash flow!  We appreciate all the comments (orig link below) which led us to this change.

http://www.mrmoneymustache.com/forum/ask-a-mustachian/in-need-of-some-direction/
 
Still on a high from our last refinance we decided to take the plunge on our primary residence as well and scheduled an appraisal. Today we received the news of the appraisal and it was not good.  Here is some background on our current primary residence:

Purchase Price: value: $218,000, rate: 6.7%
Refinance 1 (2011): value $225,000, rate: 4.85%
*Refianace 2 (2012): value $195,000, rate 3.25% *appraisal as of yesterday

Current amount owed: $170,000

Obviously as you can see above we took a big hit in our property value since the last time we refinanced (2011).  We currently do not have the money now to pay down the mortgage in order to have 20% in the property.  We emptied our available cash into our investment property a couple of months ago so we are running lean at the moment.  The mortgage company said that we can get an FHA loan with the new rate (3.25%), but we will need to pay PMI.  We have the option to pay PMI up front at a cost of $2400.00 total which would relieve us from having to have 20% equity.  So we have started to evaluate our options and this is what we have come up with:

Option A:  Sell current residence

Since our home value took a big hit we were thinking maybe it would be worthwhile to cut our losses and find another property that has better potential for future growth with less maintenance.  Our current house was built in 1955 and is still in need of a few major upgrades (new siding, new windows, etc). 

We love our house and don't really want to move, but we are keeping this option on table if need be.  We have done a ton of upgrades to the house already which makes the $195,000 a lot worse when considering the cost of things like: remodeled kitchen, bathroom, new furnace, refinished hardwood floors, etc since buying the property @ $218,000.

Since we do not have the money available now for a down payment on a new house we would plan on staying on our house until we had a new down payment and then use that.   

Option B: Keep current residence, pay PMI

We would pay the PMI fee of $2400.00 knowing we would never see it again and be on our way with our new 3.25% rate.  Paying PMI up front would mean that there would be no additional cost attached to the mortgage.  We also had a plan to save up for another investment property, this option would still allow for that.

We are leaning towards paying the PMI considering that the rate will reduce the amount of money we pay on our current mortgage.  We are not under water on our house, mainly due to the upgrades we have done.  I guess we are looking for guidance on if this is something we should consider cutting our losses on.  The idea of starting over on a new house makes me feel tired just thinking about it (we have done a lot of the upgrades ourselves).  Are there any other options or ideas we have not considered (besides that it was a bad idea to buy real estate from 2002-2007)?

Thank you all, we appreciate your feedback!

LadyM

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Re: Housing woes, what to do next?
« Reply #1 on: October 12, 2012, 08:08:24 PM »
Personally, I'd pay the PMI up front and be done with it.  Heck, it's just a nice thought to think that a $2400 payment is enough to lower your payment (even though you're technically just eliminating that pesky PMI).

Also worth thinking about - the money you are saving with your Refinance, how quickly will you make up that $2400 lump sum PMI payment? 

If it were me and the choice was between moving and $2400, I'd pay the $2400.  But I'm biased in that I hate moving.  But you say you love your house and have upgraded it, so factor that it.  Hang in there and the property values should eventually being to creep back up (in theory).

Not to mention the COST of moving, closing on a new home, time taken off of work to deal with house crap, plus fees for appraisals and inspections.....OY!  You'd probably end up paying close to $2400 by the time all that was said and done. 

Just my $0.02.  Good luck making your decision!

freelancerNfulltimer

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Re: Housing woes, what to do next?
« Reply #2 on: October 12, 2012, 08:15:36 PM »
I have never heard of being able to pay PMI up front for an FHA loan (in your case). I think you have to pay an upfront premium (normally a percentage of the mortgage) AND a monthly premium. Are you sure it's just the upfront fee?

If you truly can pay it up front that seems like a no brainer and I want to talk to my lender about refinancing and paying it upfront. Currently my PMI is $176/month. I was told if I were to do a Streamline FHA Refinance I would have to pay an upfront premium and a new higher rate of $232/month in MIP.
« Last Edit: October 12, 2012, 08:27:28 PM by freelancerNfulltimer »

jsloan

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Re: Housing woes, what to do next?
« Reply #3 on: October 12, 2012, 08:24:27 PM »
Thanks for the feedback, we are leaning towards just paying the $2400.00.  I also would hate moving, dealing with selling the house, etc but I wanted to have an open mind if we were stuck in a money pit.  Also, we have looked over the paper work there is no monthly PMI payment if we pay upfront. 

Karl

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Re: Housing woes, what to do next?
« Reply #4 on: October 13, 2012, 04:52:33 AM »
Do you plan to stay in the house permanently?  Let me suggest that putting $100 extra into your current mortgage each month, not to mention just putting the closing costs into your current mortgage instead of refinancing,  might lower your *effective*mortgage rate to something close to 3.25% without the need to take on refinancing costs or paying new PMI.  I suggest talking to a mortgage banking at a different bank (or using an on-line calculator) to see if refinancing makes sense for you at this point.

arebelspy

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Re: Housing woes, what to do next?
« Reply #5 on: October 13, 2012, 07:15:29 AM »
I like secret hidden option 3: stick with current 4.85 rate, pay down until you hit 20% equity, then refi.

You're running lean now, but you're only 14k away from 20% equity.  That's what, 4-6 months savings (old thread said 1500-2000 saved monthly, but you were trying to trim expenses, so I'm assuming you got that to at least 2k, which makes it 7 months, plus extra income now from new duplex, so less than that).

Get the 20% equity, then refi.  IMO.

Otherwise, if you don't want the property anymore, sell.  But it really comes down to: sell or (if you want to keep it) save up and refi.  PMI isn't a good choice, IMO.
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unpolloloco

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Re: Housing woes, what to do next?
« Reply #6 on: October 13, 2012, 07:34:30 AM »
How far are you from paying off an additional 14k?  The 1.6% difference in interest is about $200/month.  Therefore, if you can throw 14k in within the next year, you should be able to save money by waiting on the refinance (and rates are unlikely to change much by then).

TomTX

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Re: Housing woes, what to do next?
« Reply #7 on: October 13, 2012, 08:20:35 AM »
See if you can qualify for one of the special Fed programs to refi and avoid PMI. I HATE HATE HATE PMI. Waste of money.

If not - just save up the additional $11.6k (You must have $2400 on hand if you're willing to pay the PMI) At your stated $2k/month savings, you can refi in 6 months.

If my quickie calculation is correct, you will pay about $1,400 in additional interest in those 6 months.

If you MUST do PMI, don't pay up front. Most contracts require the lender to drop PMI at 80% if you request it - make sure that your contract is one of those, or find a different lender (local credit union?) Then pay down to 80% in 6 months and force them to drop PMI.

If you can get to 80% in 6 months, paying the PMI "up front" is the same as paying $400/month in PMI.


jsloan

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Re: Housing woes, what to do next?
« Reply #8 on: October 13, 2012, 02:58:48 PM »
Thanks again for the great feedback.  What special fed programs are available? Saving up the 14k is doable in the next.6 months, but we are afraid of rates going up.  It seems like they are going to stay low, what do you think?

tooqk4u22

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Re: Housing woes, what to do next?
« Reply #9 on: October 15, 2012, 09:52:15 AM »
Take out a HELOC on the rental property, use that to reduce your primary and get good rate.  Pay off HELOC out of cash flow. 

TomTX

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Re: Housing woes, what to do next?
« Reply #10 on: October 15, 2012, 11:24:52 AM »
Thanks again for the great feedback.  What special fed programs are available? Saving up the 14k is doable in the next.6 months, but we are afraid of rates going up.  It seems like they are going to stay low, what do you think?

It's rare for rates to change quickly, and the Fed is rolling out Quantitative Easing #3, specifically pumping money into the mortgage markets in an ongoing (likely multiyear) basis. This is a major input in keeping/pushing rates low.