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Hi Charles! Is an FHA refinance good for me?


Trailrider
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Charles, I am asking this question publicly so others may benefit from your answers. If you remember, I bought a house with your help a year and a half ago (Dec. 2006). My ARM is due to re-adjust in January. I also have a pre-payment penalty of six months interest, so I cannot refi until Dec. or Jan. I am thinking about getting an FHA 15 or 20 yr loan (as short as possible). Here are some particulars:

1. Home has appraised for tax purposes at about $98,000. Zillow says it's worth $190,000. I owe just over $68,000 on the mortgage. Would I need to get an appraisal done, or can I use the one from 2 yrs ago? Also, with that equity, will I have to pay mortgage insurance premiums?

2. I owe payments on my student loan, my car, and several credit cards. My median credit score is now about 620. Would it help to pay down those card balances? And what sort of debt to income ratio will I need to get the loan. I now make just over $42,000 per year.

3. All the nasties that I haven't been able to get off my credit report are due to go away by the end of Feb 2009. Should I wait until then to re-fi to get a better interest rate? Or does this not matter with FHA?

4. I would like to re-fi with enough cash out to cover my closing costs (maybe $2500). Will this be a problem?

Charles, you have been a godsend to us! Thank you for your help.

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" 1) Home has appraised for tax purposes at about $98,000. Zillow says it's worth $190,000. I owe just over $68,000 on the mortgage. Would I need to get an appraisal done, or can I use the one from 2 yrs ago? Also, with that equity, will I have to pay mortgage insurance premiums?"

If you get a 15 year mortgage, you won't have to pay the monthly MI.

We won't be able to use your old appraisal, but would not want to. I know what the values have done in the past year in New Braunfels, so I assume that your value has gone up. Besides your home was a little rough when you bought it.

"2. I owe payments on my student loan, my car, and several credit cards. My median credit score is now about 620. Would it help to pay down those card balances? And what sort of debt to income ratio will I need to get the loan. I now make just over $42,000 per year."

Currently the best rate is for FICO over 620. You can get an FHA loan with scores as low as 560 now, but there are rate "hits/Increases" if your scores are under 620. If you will work on your balances to bring them down to 10% of utilization that will be the best. I suggest that you work on the ones that are over 75% first, then get your smaller cards down to the 10% level as a goal.

DTI is a hard one to answer. The rule book says Housing-31%/Total-43%, but I have gotten approvals with as high as a 51% Total DTI. There are a lot of things that can compensate for higher DTI's.

"3. All the nasties that I haven't been able to get off my credit report are due to go away by the end of Feb 2009. Should I wait until then to re-fi to get a better interest rate? Or does this not matter with FHA?"

Your collections etc are past the SOL, so not a problem.

"4. I would like to re-fi with enough cash out to cover my closing costs (maybe $2500). Will this be a problem?"

Yes, we will be able to cover the closing costs into the loan, and your net payments will be much less.

Thanks for the questions. Have an awesome day.

Charles

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