Refinance - bad credit

[WishIWasALawyer]

Hi,

I bought a house a little over 2 years ago. Got an FHA loan 0% down. Interest is at a whooping 5% even though my credit score was around 760. Was forced to have mortgage insurance on my monthly payments. Unfortunately a few months after getting the house, something happened and I had to stop payments on a few credit cards in order to be able to pay the mortgage. That ruined my credit. Ive been building it back up to about 560 since then. 

My question is: 

Is there ANY way,  bank, credit union... where I could lower that interested rate, or at least drop that mortgage insurance?  or am I stuck with this?

It is with US Bank now. 

 

Thank you!

[Clydesmom]

3 minutes ago, WishIWasALawyer said:

Is there ANY way,  bank, credit union... where I could lower that interested rate, or at least drop that mortgage insurance?

With late/missing payments and a credit score of 560 chances are zero you can re-finance for a lower rate.  Premium rates you are looking for go to those with pristine credit.

I believe FHA changed their loan terms a few years back to require the insurance for the life of the loan.  The only way to drop it is to refinance with a company that does not require it.  Whether it can be dropped or not is spelled out in the terms of your loan.  You need to review those.

5 minutes ago, WishIWasALawyer said:

or am I stuck with this?

My educated guess is you are stuck with it until you rebuild and can re-finance at a lower rate.

[Harry Seaward]

50 minutes ago, Clydesmom said:

I believe FHA changed their loan terms a few years back to require the insurance for the life of the loan.

This is incorrect. The lender is required to drop mortgage insurance once the balance owed drops to 78% of the original loan amount. 

The other possibility, only available to loans more than 2 years old, is you showing you have 25%+ in equity (20% if the loan is more than 5 years old)  but this involves asking your lender to order an appraisal that you pay for (~$500).

[Goody_Ouchless]

I believe something changed several years ago, where we just missed deadline. It used to be that mortgage insurance could be dropped from FHA loan if place appraised high enough, but now it requires a full re-fi. We went back and forth with our finance guy last year and there was no financially justifiable way to get rid of the insurance, even though an appraisal would show more than enough equity. I want to say the cut off was late 2012/early 2013 for the no-refi method on FHA.

 

[WhoCares1000]

First off, if you got a 30 year fixed mortgage and have been paying on it for 2 years, you only have built up about 4% equity. Even with pristine credit, I doubt any bank would allow you to get rid of the PMI unless you come with a substantial down payment. In fact, I doubt you will hit the 20% - 25% equity until you are about 11 - 12 years out (again if this is a 30, if a 15 year mortgage, then you would hit the 20% - 25% equity in 4 - 5 years, still outside your time frame).

The best course of action for you at this point would be to clean up your credit, save up funds to increase your equity, and/or make extra payments on your mortgage. You are probably stuck with it today but not forever.

 

[Goody_Ouchless]

2 minutes ago, WhoCares1000 said:

I doubt you will hit the 20% - 25% equity until you are about 11 - 12 years out

All depends on where you are. AZ got hit so hard by downturn, that when recovery came, places were hitting 20% equity overnight. (Assuming you were lucky enough to buy in the trough, of course.)

That's what's so frustrating with ours - more than enough equity but it would cost 6K in fees, plus a higher interest rate in order to knock off that $130/month, or whatever it is.

 

[WhoCares1000]

13 minutes ago, Goody_Ouchless said:

All depends on where you are. AZ got hit so hard by downturn, that when recovery came, places were hitting 20% equity overnight. (Assuming you were lucky enough to buy in the trough, of course.)

That's what's so frustrating with ours - more than enough equity but it would cost 6K in fees, plus a higher interest rate in order to knock off that $130/month, or whatever it is.

 

It is possible that with an increase in value, the OP does have 20% - 25% equity. Even there, they will need to spend 2 - 3 years getting their credit back in good enough shape to do a refinance. Even HARP (now High LTV) required, at a minimum, decent credit.

When I did my HARP refinance in 2013, I was able to get a 10 year, 2.5% fixed. There is no way I am refinancing that regardless of the value of my home today.

[Harry Seaward]

40 minutes ago, Goody_Ouchless said:

but now it requires a full re-fi.

Yes, it seems this is the case for FHA loans.  I initially saw PMI in my googling and assumed that was the same thing as FHA insurance.  My bad.