How can I refinance a new FHA loan into a conventional one?
I am purchasing a foreclosed house for $220k, which was immediately appraised at $260k. Therefore I'm paying approximately 80% of the appraised price. I don't have 20% down payment so I'm financing through FHA, but I don't want to pay PMI for the next five years, as required by FHA regardless of loan-to-value. What can I do to take advantage of the higher appraised value to avoid PMI? With a conventional loan, you can refinance if your house appreciates to 80% loan to value. At the time of purchase, the FHA lender will only take the purchase price into account, not the appraised price. In a year can I refinance into a conventional loan and drop the PMI requirement? Can I do it through my current lender or do I have to create a completely new loan and pay off the previous one? If I do so, does my upfront PMI get refunded? Any details are appreciated.
I have no pre-payment penalty on my loan. I guess there will be additional closing costs if I were to do a re-fi. But I'm paying $100/mo for PMI x 12 months x 5 years = 6 grand. Even if closing costs are 3k, I come out ahead. I haven't really considered that all too much. I guess the biggest concern is that in a year or two or however long it takes to gain 20% equity in the house, the interest rates could go up and increase my monthly payment.
So I guess my follow up question is, say that I can refinance in a year to get rid of PMI, what would determine whether it's worth it to stick it out for the 5 years, or to refi early? Financially, what makes sense?
- godgedLv 71 decade agoFavourite answer
No, your PMI does not get refunded. That is similar to asking your car insurance company to refund your premium if you do not have any claims in your coverage period, not going to happen.
There is probably going to be some sort of pre-payment penalty if you refinance this FHA loan, check on that as well.
You may be able to refinance through your current lender, but bear in mind each refinance is going to cost you whether you use your current lender or not. There may not be upfront costs, they will roll them into the loan, but there are going to be costs.
You are going to have to weigh the possible pre-payment penalty, the cost of the refinance, and any change of interest rate against what you are going to pay in PMI. It may benefit you to pay the PMI (which is also a tax write-off as well).Source(s): Oregon Realtor
- golferwhoworksLv 71 decade ago
here is your problem. you must have ownership for 1 year to get a new loan at the appraised value. If not even a new loan does you no good at this time as they too will go off the purchase price and you will have PMI. Wait 1 year and then look into it and yes part of the upfront MIP may be refunded to you
I am a mortgage banker in TN
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