Have a mortgage question? Ask our expert!by Tim Manni
Albert Einstein once said, “The hardest thing in the world to understand is the income tax.” It’s safe to say that understanding the intricacies of your home loan and the mortgage market may be the second-hardest thing for consumers to understand. When you’re dealing with what likely will be the largest transaction of your life, you better make sure you understand what you’re getting into and what it’s going to cost you.
As we mentioned yesterday, many homeowners aren’t even taking the time to read their Good Faith Estimate, the document designed to breakdown your mortgage costs. That’s just one reason why HSH.com has made our very own expert available to all of you.
Keith Gumbinger, Vice President of HSH.com and 25-year veteran of the mortgage market, has already answered countless questions from visitors and is ready to answer even more.
Just recently, we began compiling these “Ask the Expert” questions and their answers for our visitors. Here are just a few examples of some of the questions we’ve gotten and the answers Keith has been able to provide:
Q: My bank wants a 1% origination fee to close on a construction loan. Is this outrageous or “normal”?
A: It’s probably close to normal. Most construction loans are short-term (usually a year) where you pay interest only, often at the Prime Rate plus a margin. The 1% fee may be credited toward closing costs on any permanent mortgage you obtain from the bank, so ask whether it can be applied.
Q: What is the down payment required to get a mortgage these days?
A:While some 100% financing may be available (no money down) for special circumstances, most borrowers can still put as little as 3.5% down and successfully purchase or refinance a home. To do so, you’ll need an FHA-backed mortgage, available virtually everywhere. You can get a Fannie Mae or Freddie Mac loan with as little as a five percent down payment, but you will need a mortgage insurance policy; depending upon your credit strength and the kind and location of the property you are looking to finance or refinance, these can be a challenge to come by with only a little money down.
Q: I purchased home in 1993 for $159,975 with a 30-year fixed rate at 6.75%. I currently have a VA loan with a balance of $123,834. I am considering a VA streamline refinance (no fees or appraisal). The new loan would be for $124,077 at 5.25% for 26 yrs/9mos. My current payment is $1,042 and my new payment would be $720. I am a 63 year old widow and am trying to scale back expenses. Should I refinance, considering that I’m into the principal repayment of my loan?
A: It can make good sense to refinance, but you’ll need to make a decision as to what is more important: improved cash flow to the maximum possible or owning your home free and clear more quickly. Refinancing to a new longer term will mean the greatest improvement in cash flow, but does come at long-term expense, not to mention that you’ll have a mortgage in place until you are some 90 years old.
If a streamline refinance is available with a 15 or 20-year term, you should be able to improve your cash-flow position to a fair degree without seriously increasing the long-term capitalized cost of owning your home. It should be noted you must have a second mortgage against your home, since your original mortgage from 1993 should be paid down well below the $124,077 you claim your new loan would be. Even so, using a 20-year term for your refinance would only extend the total payoff of your loans by perhaps two years, while your monthly payment would drop from $1,042 to $836 per month — not as pronounced a drop, but sizable, nonetheless.
To compare and review refinancing scenarios and costs over time, you should use our Tri-Refi Calculator.
Be sure to submit your question in the Ask the Expert box on our home page (halfway down the page on the right-hand side) to have your question answered by our expert firsthand.