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Author: AndreDavis One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127683  
Subject: Optimizing Figures for Refinance Date: 8/23/2012 10:55 AM
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DW and I are getting close to taking a stab at a refinance to reduce our rate and wanted to know how best to optimize our report card for the underwriters (where to move cash... if anywhere... prior to applying)

Right now our mortgage is $365,000 and our neighbors just sold their house (exact same model with slightly less upgrades inside and out) for $425,000. So I would guess our house would appraise for about 425-430K.

That is a LTV of 85-87%. We would need to bring about 20,000 to closing to get it down to 80%

Our current rate is 5% and credit is in the 750+ range

We have $40,000 in cash and two major loans outside of the mortgage... 1) $41,000 loan on a Honda Odyssey we just purchased in the spring and 2) $38,000 401K loan

Each is roughly a $800-900 payment per month and has about 4 years till being paid off.

So finally to my question. If we were going to attempt to get a refinance to reduce our rate from 5% down to the 3.75% range for a 30 year fixed... does it make sense to keep the $40,000 cash as cash... or pay off one of those loans before applying... or put the $40,000 into the refinance to get to 80% LTV and remove PMI

Does one situation look more appealing to the underwriters... or does it not really matter and all they care about is total cash flow?

Thanks,
-A
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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 123925 of 127683
Subject: Re: Optimizing Figures for Refinance Date: 8/23/2012 12:00 PM
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Hi Andre,

So finally to my question. If we were going to attempt to get a refinance to reduce our rate from 5% down to the 3.75% range for a 30 year fixed... does it make sense to keep the $40,000 cash as cash... or pay off one of those loans before applying... or put the $40,000 into the refinance to get to 80% LTV and remove PMI
Keep your cash *out* of your r/e equity. Do an 80% 1st and a HELOC 2nd to dodge PMI and keep your net household interest & insurance costs lowered.

Does one situation look more appealing to the underwriters... or does it not really matter and all they care about is total cash flow?
Assuming everything else about your financials & property are vanilla, the underwriters will mostly be just checking that your loan originator fulfills the items specified on the automated underwriting engine findings. Fannie gives additional preference to more assets, Freddie gives additional preference to higher credit scores.

Get yourself a trustworthy loan officer to bang out the details for you.

Dave Donhoff
Leverage Planner

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 123930 of 127683
Subject: Re: Optimizing Figures for Refinance Date: 8/23/2012 12:28 PM
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What Dave said. Keep your cash out of the house.

I don't know what Dave is seeing, him being a loan arranger and all, but what I've seen is that lenders are looking hard at TOTAL LTV, so an 80% 1st with a 10% 2nd may be a problem.

However, I'd keep as much of the 40K in cash as you can. It doesn't look like you can pay the house down to 80% and pay off one of your other loans, so don't pay either off. Your loan payment will still be there, so it won't help your ratios.

I would go for 80% LTV mortgage and come in with the cash necessary to get down to that.

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Author: chathamfool One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 123932 of 127683
Subject: Re: Optimizing Figures for Refinance Date: 8/23/2012 12:31 PM
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If I had our loan to do over again I would not have put down as much as we did. We had about 100k to put down and used about 88k to get us to 70%. Mistake. I'm sure we didn't save much on the payment side. I do know that 30k would have come in handy for other things! Oh well... Live and learn.

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Author: AndreDavis One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 123933 of 127683
Subject: Re: Optimizing Figures for Refinance Date: 8/23/2012 12:43 PM
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Appreciate the quick feedback guys. Thanks!

-A

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Author: AndreDavis One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 123969 of 127683
Subject: Re: Optimizing Figures for Refinance Date: 8/24/2012 10:35 AM
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Called QuickenLoans (used them in the past and was pleased with their online system and speed)

We're looking at a 30 year fixed 3.75% with virtually no closing costs. Sounds like we were approved for a drive-by appraisal (surprised they do that in this market). Said as long as our house isn't burnt to the ground we're locked in at a value of $450,000 and they won't be an appraisal for the refinance (awesome!). We will only need to bring $5,000 to the table to pay it down to $360,000 (80% LTV) and total fees/taxes/etc come out to $2800

Will reduce monthly payments by about $330 a month. Seems like a no-brainer since the loan pays for itself in 8 months.

Is that "drive by" appraisal something lenders are doing these days? I was shocked they aren't actually going to do a real appraisal. This almost seems too easy.

-A

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Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 123970 of 127683
Subject: Re: Optimizing Figures for Refinance Date: 8/24/2012 10:39 AM
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Called QuickenLoans (used them in the past and was pleased with their online system and speed)

We're looking at a 30 year fixed 3.75% with virtually no closing costs.


Are you sure that is the best rate you can get? Right now, I can get a 3.50% 30 year fixed rate loan with a rebate large enough to cover all closing costs from Amerisave.

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Author: AndreDavis One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 123971 of 127683
Subject: Re: Optimizing Figures for Refinance Date: 8/24/2012 10:45 AM
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I guess I figured Quicken was one of the more competitive, but should I shop around?

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Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 123972 of 127683
Subject: Re: Optimizing Figures for Refinance Date: 8/24/2012 10:47 AM
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I guess I figured Quicken was one of the more competitive, but should I shop around?

It'll only take a few minutes to look at a few websites. What is your time worth?

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Author: AndreDavis One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 123973 of 127683
Subject: Re: Optimizing Figures for Refinance Date: 8/24/2012 10:58 AM
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Hmmm... so I think the difference here is probably the drive by appraisal. I think QuickenLoan is inflating the value to get me to 80%

My best guess is the house would appraise for $425,000-$430,000 but they are using $450,000 and guaranteeing that it will hold through closing.

when I run the numbers on Amerisave I see that I qualify for 3.375% (almost half a point lower) but if I use $425,000 as the value, I'm paying $180 a month in PMI to go that route taking the payments slightly higher.

-A

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Author: CCinOC Big funky green star, 20000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 123975 of 127683
Subject: Re: Optimizing Figures for Refinance Date: 8/24/2012 11:16 AM
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AndreDavis wrote: Is that "drive by" appraisal something lenders are doing these days? I was shocked they aren't actually going to do a real appraisal. This almost seems too easy.


They use an automated valuation model called "Home Value Explorer" to determine value.

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 123976 of 127683
Subject: Re: Optimizing Figures for Refinance Date: 8/24/2012 11:35 AM
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I guess I figured Quicken was one of the more competitive, but should I shop around?

I alwasy thought Quickenloan was like LendingTree. Not an actual lender, but a place that took your info and shopped it around to the actual lenders.

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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 123980 of 127683
Subject: Re: Optimizing Figures for Refinance Date: 8/24/2012 12:01 PM
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I alwasy thought Quickenloan was like LendingTree. Not an actual lender, but a place that took your info and shopped it around to the actual lenders.


Used to be that was true....
Then they launched their own brokerage division...
Then they got a warehouse line & began direct funding as a correspondent banker.
Now they sell their loans directly to the agencies, and/or bank majors.

They have both retail (what you get if you shop yourself) and wholesale (discounted rates for brokers.)

Dave Donhoff
Leverage Planner

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Author: CCinOC Big funky green star, 20000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 123982 of 127683
Subject: Re: Optimizing Figures for Refinance Date: 8/24/2012 2:57 PM
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Quicken Loans is an actual lender with a wholesale and retail channel.

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Author: spinning Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 123994 of 127683
Subject: Re: Optimizing Figures for Refinance Date: 8/24/2012 5:02 PM
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It'll only take a few minutes to look at a few websites. What is your time worth?

We did a refi through Amerisave last year. After we applied they gave us a higher rate than the website advertised. When I asked about that I was told the advertised rate is for credit scores above 800, and our scores were only in the 790s. It was still a good rate and we went through with the refi, but beware about advertised rates.

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Author: AndreDavis One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124414 of 127683
Subject: Re: Optimizing Figures for Refinance Date: 10/16/2012 12:08 PM
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Follow-up:

We are signing the closing documents tomorrow. 30 year fixed at 3.75% no closing costs. Actually the lender credit exceeded no closing and some is being applied towards taxes, escrow and stuff (not sure if that is considered in the no-cost that people normally speak of). As far as I can tell, this entire loan will only cost us $300 when factoring in absolutely everything involved. It is lowering our monthly payment by $275 so the refinance pays for itself in 25 days.

We locked our rate back in August on what looks like a day or set of days where the national average had gone up slightly (quarter point higher than it is today). Oh well. We estimated that it wasn't worth the hassle and unknown to try and start over to get a better rate. Quicken Loans (in their defense) actually applied an additional $1500 credit towards our closing when I brought it up with them that rates are lower now than when we locked.

For the first time since we bought the house we are finally in a position to rent (if we chose) and be making a profit on the cash flow. Now to start socking away money towards our next house in hopes that we can keep this one in the future and become landlords.

Thanks for the advice and tips.

-A

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