My Experience Re-Fi’ing With a High LTV

I bought my place at Trace Lofts in September 2007. I know, I made a huge mistake buying at peak. I bought it with a 6.25% interest only 5 year adjustable rate mortgage through Countrywide (since at the time no one else would lend to me with a rental unit). With the low interest rates we were seeing in 2009 I tried to re-fi and it proved to be quite an ordeal. The short story is that at the beginning of this year I re-fi’d down to 5.25% with a 30-year fixed FHA loan through Wells Fargo brokered by Eastlake Mortgage. It wasn’t the product I wanted as I was hoping to re-fi at around 5% with a 5-year non-FHA loan but turns out I didn’t have any options.

At the beginning of 2009 there weren’t many options for people like me in the 95%+ LTV (loan-to-value) category.

Then I heard aboutObama’s re-fi program for those with up to 125% LTVs and got excited about that but unfortunately I didn’t qualify since my loan wasn’t owned by Fannie Mae or Freddie Mac.

Then towards August I checked in with a lender about re-fi’ing and there were options available if I was 95% LTV or better. But what was my place worth? I decided to take a chance on an appraisal even though I knew I had to be underwater. Worth the chance right? I figured it was since there had been some reasonably pricey (in terms of $/sq. ft.) sales at Trace North.

Now keep in mind the way appraisals worked has really changed. Nowadays the lender can’t pick the appraiser, they need to pick from a pool, etc. This is governed by the home valuation code of conduct.

Unfortunately the appraisal came back way low at $375,000! [pdf] (comp’d against: 2200, 19th Ave, Trace North) I didn’t necessarily disagree with their pick of comps but I disagreed with how they adjusted the square footage. Since our place is a large 1 bedroom they adjusted the square footage from the other comps at only $50/square foot. Ugh. We tried to argue with the appraiser but no dice.

That turned me off re-fi’ing for a bit but I eventually talked to the broker who originally did a number of the loans at Trace Lofts and since then had done some re-fi’s for folks. He reminded me that a FHA loan might be an option since FHA hadn’t yet adopted the HVCC guidelines. Meaning that the lender/broker could pick the appraiser. However, the drawback of FHA is that you have to pay a 1.75% mortgage premium upfront. However, looking at the amortization tables I’d break even in just under two years so I committed to another appraisal and this one came back at $475,000 [pdf] (comp’d against Olive 8, the Crawford and Brix). Now it took some time to get this all sorted out and as my re-fi was in underwriting the lender we were going to use for a 5 year ARM FHA stopped doing FHA spot approvals and Trace Lofts isn’t FHA approved (though Trace North is). This left us only one lender, Wells Fargo, who only had a 30 year option which meant a higher rate. I also opted into an even higher rate in order to have the broker pick up the closing costs which will make sense if I have this loan for under five years.

So I’m now some what happily re-fi’d. But it turns out that at 5.25% versus 6.25% interest-only, my monthly payment is the same. However, after a few years I should start digging into the mortgage balance whereas the interest-only option kept the mortgage balance the same for the life of the loan. Also an FHA loan is assumable so if rates shoot up and I decide to sell having a loan that a purchaser could assume at lower than market rates would be attractive.

I’m glad I stuck with it and re-fi’d. Though if I had been more persistent perhaps I could have gotten a better rate and different product but everything was moving so quickly in the mortgage industry. Definitely hard for a customer to keep up. If I didn’t work at Redfin it’d be a challenge sorting out conforming from non-confirming, FHA from non-FHA, HVCC, Fannie Mae vs Freddie Mac, and on and on.

Thanks to all the loan people I’ve worked with over the past year, Jamie at Countrywide, Redfin’s partner lenders Brian at Cobalt & Matt at Cornerstone and ultimately Mark at Eastlake Mortgage. And thanks to Lisa for writing Redfin’s real estate glossary, it was in editing her work that I learned the most about mortgages.

Live at Trace and haven’t re-fi’d but want to? FHA loans are now requiring appraisers under HVCC. However, Eastlake Mortgage has a two week extension during which they can pick the appraiser but you need to get your appraisal ordered by February 15th so you need to act fast.