Author Topic: Pull the Trigger on Refinance?  (Read 6768 times)

kudy

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Pull the Trigger on Refinance?
« on: October 31, 2012, 06:05:10 PM »
I can't make a decision on whether to commit & potentially lose $450 to move forward with a refinance, what would you do? Here's the scenario:

  • $109,000 loan balance
  • 2 years ago, the house appraised for $140,000
  • $11,000 in emergency fund + house maint. accounts that could be used to buy down principal if appraisal is low
  • if refinanced, would lower my payment by $200/month, remove PMI, & lock in lower rate
  • closing costs of $750

So... if the house appraises as it did 2 years ago, I will be fine with a conventional loan and 80% LTV. My backup cash could maintain that 80% LTV down to an appraised value of $122,500, but any lower than that and I wouldn't be able to complete the loan and would be out $450 for the appraisal.

It's really hard to say whether the appraisal will be close to what I need - it seems so subjective.  Does anyone have any tricks for estimating an appraisal? The "recently sold" listings on Zillow range all over the place for my neighborhood, just as they did 2 years ago.  The housing market in my town has remained steady, and it seems sales of houses in my price range have accelerated over the past few years.

So... what would you do? Is it worth possibly losing $450 to get a nice lower rate? Should I compile cash (diverted from money that would go to my 401k otherwise) for another 6 months and hope that the rates and closing costs stay low in the meantime?

jawisco

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Re: Pull the Trigger on Refinance?
« Reply #1 on: October 31, 2012, 06:19:45 PM »
I think you should definitely get it appraised without hesitation.

You will want to confirm that the appraisal is the only thing standing between you and getting the loan refinanced.  After you confirm that, you pay $450 for the likely result of saving $2400/year for the life of the loan.  That is real money! 

Your reward is very big compared to the amount of risk you are taking on by spending $450.  If there was only a 10% chance your appraisal is high enough, it would still be worth this risk in my opinion.  Sounds like you have much better odds than that...

Another Reader

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Re: Pull the Trigger on Refinance?
« Reply #2 on: October 31, 2012, 07:01:24 PM »
There are two problems with appraisals in the current environment.  First, the appraiser may not be local and therefore may not be familiar with your market.  Your lender has very little control over what appraiser is selected - it's often done by an appraisal management company.  An appraiser from 100 miles away may rely on comparables that are not really comparable or may not correctly adjust for location, upgrades, and condition of the property.  Second, the appraiser will not likely know all the details of the sales he or she is using as comparables and may not adjust properly for conditions of sale.  For example, a sale may be a foreclosure sale where cash only was required or a short sale where the listing agent had a buyer in pocket.  In both cases, the property was not really exposed to the market.  Such sales must be adjusted if possible and discarded otherwise. 

If you live in a tract subdivision, it should be easy to get the most recent comparable sales in the subdivision from the agent that sold you the property.  The agent should be able to tell you which sales are the most comparable and why.  You can then politely provide those comparable sales to the appraiser with the agent's comments.  That agent should also be able to give you a fairly tight range of what the property would sell for in the current market before you write the check for the appraisal.

If you live in an area where all the properties were custom built at different times and are of varying quality, age and condition, the appraiser's job (and yours) is much harder.  In that case, about the best you can do is provide the comparables your agent would use to price the house for sale and hope the appraiser comes up with a reasonably accurate value.

You can try disputing an inaccurate appraisal, but appraisers are very defensive.  If there is a glaring error, you may win the battle.

Zillow and their Z-estimates aren't worth anything.  Period.

kudy

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Re: Pull the Trigger on Refinance?
« Reply #3 on: October 31, 2012, 09:08:36 PM »
Another question, do you think giving the appraiser a rundown of what you've upgraded is a good idea, or just an annoyance? During my last appraisal I hung out with him for the first 5 minutes and casually reviewed what I'd improved.

Also, would providing the new appraiser with a copy of my last one be an insult or a help? Seems it could go either way, depending on the personality of who does the job.

MountainFlower

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Re: Pull the Trigger on Refinance?
« Reply #4 on: October 31, 2012, 10:21:01 PM »
Kudy,

I provided my appraiser with a typewritten sheet with all of the features of house.  I treated my appraisal as if I was a real estate agent selling my house.  We live in the mountains above Denver/Boulder in a custom log home that we built.  Every single house in our neighborhood that has changed hands has been a short sale or bank foreclosure, every one.   Property values up here are all over the map so I was really worried.  I wasn't shy about pointing out features.   I probably annoyed him on some level, but I think I ultimately made his job easier.  I actually provided him with a folder of information. 

  I was really sweating it out whether or not our home would appraise at what we needed.  Turns out, it came in 75K higher, so I can't say that my efforts were in vain. 

Quick240

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Re: Pull the Trigger on Refinance?
« Reply #5 on: November 01, 2012, 06:57:34 AM »
Another question, do you think giving the appraiser a rundown of what you've upgraded is a good idea, or just an annoyance?

I just had an appraisal done on Tuesday.  After he walked through the house, HE asked ME what all I've upgraded.  After I gave him the rundown, he mentioned that the lady's house he did just before mine took longer than expected because she pointed out every little thing she'd ever touched in the house and told a story about it.

So to answer you question, I'd say it's a good idea, but probably should just hit the major highlights so you don't wander into "annoyance" territory....

bo_knows

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Re: Pull the Trigger on Refinance?
« Reply #6 on: November 01, 2012, 07:20:51 AM »
I would love to chime in here with my own example, and ask for similar recommendations.

We've been waiting to refi, to see if QE3 pushes the rates further down, but it seems a bit silly now considering I don't think there is any way in hell that rates will get  < 3% for a 30yr fixed.

Our current mortgage is ~$284k @ 4.75% on a home that was appraised 1.5yr's ago at $370k (we refi'ed back then from 5.875 to 4.75).  The kicker? Our credit union charges a 1% origination fee.  So, after the bank fees, transfer fees, and title fees, we're looking at roughly $6k in fees.  The new loan would be at 3.25% for 30years, and would cut $300/mo off our payment.

I know that the breakeven for us is only 3-4 years... but am I crazy to think 1% origination is too high? Our credit union has been very good to us, and has great service.  I'm waffling, and I need a facepunch, I think.

tooqk4u22

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Re: Pull the Trigger on Refinance?
« Reply #7 on: November 01, 2012, 09:10:10 AM »
Kudy - if your low point is $122k value that would represent a 12% drop from two years ago, if you think the last appraisal was realistic then you should be ok.

bo_knows - Well the short answer is that you don't NEED to use the credit union - shop around.

jrhampt

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Re: Pull the Trigger on Refinance?
« Reply #8 on: November 01, 2012, 09:17:44 AM »
From what I've seen a 1% origination fee is pretty standard.

kudy

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Re: Pull the Trigger on Refinance?
« Reply #9 on: November 02, 2012, 09:41:33 PM »
Thanks for all the feedback, a written document of all improvements sounds like a great idea.  I will treat the appraisal as if the house is being shown to an interested buyer.  I think I might also give them a print out of the last appraisal.

kudy

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Re: Pull the Trigger on Refinance?
« Reply #10 on: November 11, 2012, 04:47:22 PM »
Submitted my loan application last night, so things are on their way - if the mortgage office is open tomorrow (not sure if they take the day off like my bank), I should have a 45 day rate lock, and an appraisal very shortly afterward. I've spent a majority of this weekend clearing clutter, cleaning dusty corners, and finding things to sell.

kudy

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Re: Pull the Trigger on Refinance?
« Reply #11 on: November 14, 2012, 09:11:48 PM »
I really like Box Home Loans interface and process so far... still haven't heard from an appraiser; the appraisal is really jacking up my stress level.  I feel like I can't stop cleaning until it's done... I pray that if it comes in under my estimated value that I have enough cash to pay down the principal.

kudy

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Re: Pull the Trigger on Refinance?
« Reply #12 on: November 21, 2012, 12:43:36 PM »
Had my appraisal today - I've been cleaning and organizing the house for a few weeks; some people may say that cleaning won't have an effect on value, but I know how fickle people are, and a clean and nicely presented house is bound to have the advantage.

The appraiser was nice and professional, and he said we'd have the report next week - he gladly took my appraisal report from 2 years ago and the other spec documents I had put together. Crossing my fingers and trying to forget that I am waiting for this over the long weekend!

MountainFlower

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Re: Pull the Trigger on Refinance?
« Reply #13 on: November 21, 2012, 01:04:19 PM »
Good luck Kudy.  You are where we were in August.  I really hope it comes in for you.  I think you were right to clean and make the house look good.  Appraisers can say that they are impartial to that, but it all factors into the condition of the home. 

Ours came through with flying colors.  Crossing fingers!


kudy

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Re: Pull the Trigger on Refinance?
« Reply #14 on: November 28, 2012, 07:59:58 PM »
Heard the value from the appraisal today, it came in $1K more than the value I gave them on the application! No need to put any cash in, woohoo!

Another Reader

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Re: Pull the Trigger on Refinance?
« Reply #15 on: November 28, 2012, 08:13:47 PM »
Just had the appraiser in today for my refinance.  Don't care about the value, because the LTV is less than 50 percent, but I still cleaned the house.  Don't want pictures of a dirty house floating out there in the ether!  I also replaced a number of old blinds and touched up the paint.

Seriously, a clean house with all the touch up paint done and the obvious small problems fixed makes a good impression.  Whether you are selling or refinancing, you want to maximize the value.  You did all the right things and your work paid off.

grantmeaname

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Re: Pull the Trigger on Refinance?
« Reply #16 on: December 02, 2012, 09:58:48 AM »
Heard the value from the appraisal today, it came in $1K more than the value I gave them on the application! No need to put any cash in, woohoo!

Congrats!

Seriously, a clean house with all the touch up paint done and the obvious small problems fixed makes a good impression.  Whether you are selling or refinancing, you want to maximize the value.
This goes double for used cars and computers.

kudy

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Re: Pull the Trigger on Refinance?
« Reply #17 on: December 13, 2012, 09:25:01 PM »
I flew through the underwriting - from submission to the underwriter to approval took less than 24 hours. Upon approval they were able to schedule the closing the next day (today) - so, I've just finalized closing on my refinance! I will try and write a full review for Box Home Loans soon.

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Re: Pull the Trigger on Refinance?
« Reply #18 on: December 13, 2012, 09:46:38 PM »
Congratulations!  Not much more than 30 days from application to closing in this market is darn good.  My appraisal came back about 15 percent higher than I can actually sell the house for, but who is complaining.  The docs are on their way and the refi should close before the end of next week.  The payback period will be long at 17 months, but I expect to hold on to the house and eventually rent it out.  Unless we go the way of Japan, I can't imagine refinancing again at a lower rate.

kudy

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Re: Pull the Trigger on Refinance?
« Reply #19 on: December 14, 2012, 10:22:28 PM »
Thanks! It was actually 22 business days - pretty sweet.

I just finished writing my glowing review of Box Home Loans on my blog if anyone wants to read it.