Question for SGIP & Trojan on a re-fi i am considering

panda

panda

Well-known member
SGIP and Trojan,

I have SFR rental property in northern Atlanta where i paid $550,000 in June '06. Property has been come down to around $475,000 today. I put $200k down and took a loan for $345,000. Today I pay an 5 year interest only loan at 5.625% which comes out to be around $1613 a month. My current rental income from my tenant is $3000 a month.

I got a call from a mortgage broker in Atlanta who can get me in at 4.875% 30 year fixed for a rental property where my payments will be $1817 a month. The catch is $1750 closing costs, $450 apprasial (loan to value must be 75%), $800 extra to waive escrows?

My biggest fear is by 2013 when my 5 year io loan expires, that the rates are at 9-10% and I can't sell the property for what i paid in 2006. The potential of the area is very optimistic (population and job growth) and since there are couple fortune 500 companies recently relocated near my rental, finding a tenant should be no problem.

My decision is to keep ride out my 5 year interest only loan until 2013 and cross my fingers
or go ahead with the 4.875 refi with the upfront costs. Is this no brainer to you guys. What would you guys recommend?

Any advice is appreciated. 
 
Sorry, I know I am not SGIP or Trojan.  But I would go with refi and fix the rate.  People have been saying rates have no where to go but up.  Somehow, it keeps finding reason to go lower.  Still, with tightening guidelines, real estate value going lower or flat, and rate at historic lows.  If you have the option to fix your rate at a relatively low cost.  I would vote for refi'ing into a fixed loan.
 
Panda said:
SGIP and Trojan,

I have SFR rental property in northern Atlanta where i paid $550,000 in June '06. Property has been come down to around $475,000 today. I put $200k down and took a loan for $345,000. Today I pay an 5 year interest only loan at 5.625% which comes out to be around $1613 a month. My current rental income from my tenant is $3000 a month.

I got a call from a mortgage broker in Atlanta who can get me in at 4.875% 30 year fixed for a rental property where my payments will be $1817 a month. The catch is $1750 closing costs, $450 apprasial (loan to value must be 75%), $800 extra to waive escrows?

My biggest fear is by 2013 when my 5 year io loan expires, that the rates are at 9-10% and I can't sell the property for what i paid in 2006. The potential of the area is very optimistic (population and job growth) and since there are couple fortune 500 companies recently relocated near my rental, finding a tenant should be no problem.

My decision is to keep ride out my 5 year interest only loan until 2013 and cross my fingers
or go ahead with the 4.875 refi with the upfront costs. Is this no brainer to you guys. What would you guys recommend?

Any advice is appreciated. 
Click to expand...
It all depends on hold long you plan on holding the property.  Honestly, I would seriously consider getting a 7-year ARM if you don't plan on owning the property for more than 10 years.  The current rate for a 7-year ARM is around 3.5% to 3.75% and the annual adjustment can only be 2% per year and there is a 5-6% interest rate ceiling rate above the start rate.  One of my current buyers is seriously looking at getting one as the rate difference between the 7-year ARM and 30-year fixed is over 1%.  You should run some scenario analysis on excel spreadsheet to determine what makes most sense on paper.  Give me a call if you want to talk about it some more.
 
fe9000 said:
Sorry, I know I am not SGIP or Trojan.  But I would go with refi and fix the rate.  People have been saying rates have no where to go but up.  Somehow, it keeps finding reason to go lower.  Still, with tightening guidelines, real estate value going lower or flat, and rate at historic lows.  If you have the option to fix your rate at a relatively low cost.  I would vote for refi'ing into a fixed loan.
Click to expand...
People can say all they want about rates going up for the past 2 years, but rates might get down to 4% if something blows up in Europe.  Panda has to consider his time horizon of owner when making the decision on what kind of loan product works best for his needs.  If he's not gonna own the home for more than 7-10 years, he should seriously consider getting a 7-year ARM loan which has an interest rate of 3.50% to 3.75%.  Over the 7 year period of the ARM, he will be able to save over $20k going with a 7-year ARM loan versus a 30-year fixed loan.  Also, Panda needs to look at the tax effects of refinancing and having a lower interest rate.  No need to pay for the insurance of a 30-year fixed rate loan if you won't benefit from it.
 
It appears you're at a 72% loan to value position - a good thing - and with a rate of 5.625% I'd suggest refinancing into something.  The rebate on ARM loans is quite low relative to fixed products so if you refinance into an ARM it will likely cost you more in closing fees. Assuming a 7/1 ARM at 4.0% (given that it's non-owner occupied) the rate differential is about $5600 per year. This means you'll make back your costs in the first year of the loan which is a heckuva deal.

Ownership versus payment reduction is the question to weigh as you decide what product to refinance to. No matter what, you've got to refi, so that debate should be considered "over". What about a 15 year fixed loan? At 4.25% it's about $950 more per month than what you're paying today. Per your rental income you might be able to absorb the lower rental income now, for building equity now. Who knows where rates will be in 7 years? I don't know. I don't care. It's too far into the future so any prediction is just as valid as the next one, so the ARM vs Fixed debate is not something I'd suggest considering as a part of your decision process. If you need payment reduction, go with the ARM. If you want peace of mind with the benefit of seeing your tenant pay your loan back faster, then it's time to consider a 15, not a 30 (IMHO)

My .02c

Soylent Green Is People. 
 
sgip said:
It appears you're at a 72% loan to value position - a good thing - and with a rate of 5.625% I'd suggest refinancing into something.  The rebate on ARM loans is quite low relative to fixed products so if you refinance into an ARM it will likely cost you more in closing fees. Assuming a 7/1 ARM at 4.0% (given that it's non-owner occupied) the rate differential is about $5600 per year. This means you'll make back your costs in the first year of the loan which is a heckuva deal.

Ownership versus payment reduction is the question to weigh as you decide what product to refinance to. No matter what, you've got to refi, so that debate should be considered "over". What about a 15 year fixed loan? At 4.25% it's about $950 more per month than what you're paying today. Per your rental income you might be able to absorb the lower rental income now, for building equity now. Who knows where rates will be in 7 years? I don't know. I don't care. It's too far into the future so any prediction is just as valid as the next one, so the ARM vs Fixed debate is not something I'd suggest considering as a part of your decision process. If you need payment reduction, go with the ARM. If you want peace of mind with the benefit of seeing your tenant pay your loan back faster, then it's time to consider a 15, not a 30 (IMHO)

My .02c

Soylent Green Is People. 
Click to expand...
sgip said:
It appears you're at a 72% loan to value position - a good thing - and with a rate of 5.625% I'd suggest refinancing into something.  The rebate on ARM loans is quite low relative to fixed products so if you refinance into an ARM it will likely cost you more in closing fees. Assuming a 7/1 ARM at 4.0% (given that it's non-owner occupied) the rate differential is about $5600 per year. This means you'll make back your costs in the first year of the loan which is a heckuva deal.

Ownership versus payment reduction is the question to weigh as you decide what product to refinance to. No matter what, you've got to refi, so that debate should be considered "over". What about a 15 year fixed loan? At 4.25% it's about $950 more per month than what you're paying today. Per your rental income you might be able to absorb the lower rental income now, for building equity now. Who knows where rates will be in 7 years? I don't know. I don't care. It's too far into the future so any prediction is just as valid as the next one, so the ARM vs Fixed debate is not something I'd suggest considering as a part of your decision process. If you need payment reduction, go with the ARM. If you want peace of mind with the benefit of seeing your tenant pay your loan back faster, then it's time to consider a 15, not a 30 (IMHO)

My .02c

Soylent Green Is People. 
Click to expand...

Thanks Soy and Trojan.
This 2006 home I?m trying to refinance was purchased  prior to my IHB education (when Panda was rookie). I paid the agent the full 3% commission on a new construction I found and paid full retail for the house. I don't want to carry the home more than 10 years of age so refinancing to a 7 year ARM seems to make a lot of sense to me.
Right now I am in negotiations of purchasing my, 3400 sq/ft SFR 6bed/5 bath, 3 car garage on a 1/2 acre land, which feeds into the top 1% school in the state for $389,900. I am asking for $50,000 towards upgrades and finished basement. The Atlanta real agent is also rebating 80% of the commission towards escrow to buy down the loan. After all the IHB education I have received from all of you, I think i am getting better at this.

Lovely Photos for IHO:
25kr75u.jpg

aynkzo.jpg

 
Panda said:
sgip said:
It appears you're at a 72% loan to value position - a good thing - and with a rate of 5.625% I'd suggest refinancing into something.  The rebate on ARM loans is quite low relative to fixed products so if you refinance into an ARM it will likely cost you more in closing fees. Assuming a 7/1 ARM at 4.0% (given that it's non-owner occupied) the rate differential is about $5600 per year. This means you'll make back your costs in the first year of the loan which is a heckuva deal.

Ownership versus payment reduction is the question to weigh as you decide what product to refinance to. No matter what, you've got to refi, so that debate should be considered "over". What about a 15 year fixed loan? At 4.25% it's about $950 more per month than what you're paying today. Per your rental income you might be able to absorb the lower rental income now, for building equity now. Who knows where rates will be in 7 years? I don't know. I don't care. It's too far into the future so any prediction is just as valid as the next one, so the ARM vs Fixed debate is not something I'd suggest considering as a part of your decision process. If you need payment reduction, go with the ARM. If you want peace of mind with the benefit of seeing your tenant pay your loan back faster, then it's time to consider a 15, not a 30 (IMHO)

My .02c

Soylent Green Is People. 
Click to expand...
sgip said:
It appears you're at a 72% loan to value position - a good thing - and with a rate of 5.625% I'd suggest refinancing into something.  The rebate on ARM loans is quite low relative to fixed products so if you refinance into an ARM it will likely cost you more in closing fees. Assuming a 7/1 ARM at 4.0% (given that it's non-owner occupied) the rate differential is about $5600 per year. This means you'll make back your costs in the first year of the loan which is a heckuva deal.

Ownership versus payment reduction is the question to weigh as you decide what product to refinance to. No matter what, you've got to refi, so that debate should be considered "over". What about a 15 year fixed loan? At 4.25% it's about $950 more per month than what you're paying today. Per your rental income you might be able to absorb the lower rental income now, for building equity now. Who knows where rates will be in 7 years? I don't know. I don't care. It's too far into the future so any prediction is just as valid as the next one, so the ARM vs Fixed debate is not something I'd suggest considering as a part of your decision process. If you need payment reduction, go with the ARM. If you want peace of mind with the benefit of seeing your tenant pay your loan back faster, then it's time to consider a 15, not a 30 (IMHO)

My .02c

Soylent Green Is People. 
Click to expand...

Thanks Soy and Trojan. This 2006 home was purchased during my prior to the IHB education years (when i was rookie). I paid the agent the full 3% commission on a new construction I found and paid full retail for the house. I don't want to carry the home more than 10 years of age so the 7 year ARM seems to make a lot of sense.

Right now I am in negotiations of purchasing my 3 car garage, 3400 sq/ft 6bed/5 bath SFR on a 1/2 acre land, which feeds into the top 1% school in the state for $389,900. Asking for $50,000 in upgrades and basement. The Atlanta real agent is also rebating 80% of the commission towards escrow. After all the IHB education I have received, I think i am getting better at this.
Click to expand...

Thanks for rubbing it in man.  Thanks.  :)
 
fe9000 said:
Panda said:
sgip said:
It appears you're at a 72% loan to value position - a good thing - and with a rate of 5.625% I'd suggest refinancing into something.  The rebate on ARM loans is quite low relative to fixed products so if you refinance into an ARM it will likely cost you more in closing fees. Assuming a 7/1 ARM at 4.0% (given that it's non-owner occupied) the rate differential is about $5600 per year. This means you'll make back your costs in the first year of the loan which is a heckuva deal.

Ownership versus payment reduction is the question to weigh as you decide what product to refinance to. No matter what, you've got to refi, so that debate should be considered "over". What about a 15 year fixed loan? At 4.25% it's about $950 more per month than what you're paying today. Per your rental income you might be able to absorb the lower rental income now, for building equity now. Who knows where rates will be in 7 years? I don't know. I don't care. It's too far into the future so any prediction is just as valid as the next one, so the ARM vs Fixed debate is not something I'd suggest considering as a part of your decision process. If you need payment reduction, go with the ARM. If you want peace of mind with the benefit of seeing your tenant pay your loan back faster, then it's time to consider a 15, not a 30 (IMHO)

My .02c

Soylent Green Is People. 
Click to expand...
sgip said:
It appears you're at a 72% loan to value position - a good thing - and with a rate of 5.625% I'd suggest refinancing into something.  The rebate on ARM loans is quite low relative to fixed products so if you refinance into an ARM it will likely cost you more in closing fees. Assuming a 7/1 ARM at 4.0% (given that it's non-owner occupied) the rate differential is about $5600 per year. This means you'll make back your costs in the first year of the loan which is a heckuva deal.

Ownership versus payment reduction is the question to weigh as you decide what product to refinance to. No matter what, you've got to refi, so that debate should be considered "over". What about a 15 year fixed loan? At 4.25% it's about $950 more per month than what you're paying today. Per your rental income you might be able to absorb the lower rental income now, for building equity now. Who knows where rates will be in 7 years? I don't know. I don't care. It's too far into the future so any prediction is just as valid as the next one, so the ARM vs Fixed debate is not something I'd suggest considering as a part of your decision process. If you need payment reduction, go with the ARM. If you want peace of mind with the benefit of seeing your tenant pay your loan back faster, then it's time to consider a 15, not a 30 (IMHO)

My .02c

Soylent Green Is People. 
Click to expand...

Thanks Soy and Trojan. This 2006 home was purchased during my prior to the IHB education years (when i was rookie). I paid the agent the full 3% commission on a new construction I found and paid full retail for the house. I don't want to carry the home more than 10 years of age so the 7 year ARM seems to make a lot of sense.

Right now I am in negotiations of purchasing my 3 car garage, 3400 sq/ft 6bed/5 bath SFR on a 1/2 acre land, which feeds into the top 1% school in the state for $389,900. Asking for $50,000 in upgrades and basement. The Atlanta real agent is also rebating 80% of the commission towards escrow. After all the IHB education I have received, I think i am getting better at this.
Click to expand...

Thanks for rubbing it in man.  Thanks.  :)
Click to expand...

fe9000, if it makes you feel any better I will say this. If i was a multi-millionaire and money came out of my butt... I would much rather prefer to live in Irvine than the place i am going to. :)  In my humble opinion, when you buy a home in Irvine, you are buying a lifestyle, not an investment where you can sell the home for much more than what you are paying today.
 
Panda,
        few of observations from your post.

1] the price drop from 2006 is only 14% [550 to 475]. I thought 2006 was the countrywide housing peak. unless it was much
    different in atlanta. If not then why are people complaining about Irvine having dropped only 20%.
    [Believe me i waited for 4 years since 2006 to see a 40% drop before buying into 2010 collection. So I'm not
    supporting Irvine but just curious.] unless this is one of the most desirable locations. In that case will all desirable locations [IRVINE]
    see such holding power in prices irrespective of what is happening in many other places in the country!!!!

2] Although money my not be coming from your butt, still 200K down on a rental property that you are generating
    almost 2X of expense is pretty cool. that to during the years when no down loans were so common in 2006.

3] I agree that prices in other parts of the world are much better than irvine. but this is what i have seen from my experience.
    when i moved from East to Irvine the prices here were about 2.5 to 3 times for similar homes. [that is what prevented us from jumping in
    back before bubble got into high gear]. somehow after the slow deflation of bubble for 4 years it seems that same 2.5 to 3 ratio is holding
    well still. even within the OC Irvine had a premium of 10-15% above certain other desirable OC location before and now.
    i guess everyone has to live where their jobs are and have to put up with what the going prices in that area are. 


Panda said:
SGIP and Trojan,

I have SFR rental property in northern Atlanta where i paid $550,000 in June '06. Property has been come down to around $475,000 today. I put $200k down and took a loan for $345,000. Today I pay an 5 year interest only loan at 5.625% which comes out to be around $1613 a month. My current rental income from my tenant is $3000 a month.

I got a call from a mortgage broker in Atlanta who can get me in at 4.875% 30 year fixed for a rental property where my payments will be $1817 a month. The catch is $1750 closing costs, $450 apprasial (loan to value must be 75%), $800 extra to waive escrows?

My biggest fear is by 2013 when my 5 year io loan expires, that the rates are at 9-10% and I can't sell the property for what i paid in 2006. The potential of the area is very optimistic (population and job growth) and since there are couple fortune 500 companies recently relocated near my rental, finding a tenant should be no problem.

My decision is to keep ride out my 5 year interest only loan until 2013 and cross my fingers
or go ahead with the 4.875 refi with the upfront costs. Is this no brainer to you guys. What would you guys recommend?

Any advice is appreciated. 
Click to expand...
 
1] the price drop from 2006 is only 14% [550 to 475]. I thought 2006 was the countrywide housing peak. unless it was much
    different in atlanta. If not then why are people complaining about Irvine having dropped only 20%.
    [Believe me i waited for 4 years since 2006 to see a 40% drop before buying into 2010 collection. So I'm not
    supporting Irvine but just curious.] unless this is one of the most desirable locations. In that case will all desirable locations [IRVINE]
    see such holding power in prices irrespective of what is happening in many other places in the country!!!!

Dear Waitin4ever,
First I want to say that I've always felt that Irvine is the best place to live in the U.S. if not the world. Today.. my opinion has not changed. Like you I was also hoping to pick up a newer 2500sq/ft SFR for $650,000 that was selling for a $1M in 2006. Looking at the activity in the New Woodbury Collection... that is not going to happen. Atlanta's real estate market peaked in 2007 and have also corrected about 20% since then. Keep in mind that Atlanta real estate saw am appreciation of only 5% while Irvine appreciated 25-30% in 2004-2005. In the last 5 year real estate decline (1990 - 1995) in OC/LA, Atlanta and the Chicago real estate had a modest rise of 1% a year. I thought that Atlanta was a hedge to the falling market while OC/LA/Irvine would fall 40%, but i was completely wrong. I've realized that history does not always repeat exactly like it did before.

waitin4ever said:
Panda,
        few of observations from your post.

1] the price drop from 2006 is only 14% [550 to 475]. I thought 2006 was the countrywide housing peak. unless it was much
    different in atlanta. If not then why are people complaining about Irvine having dropped only 20%.
    [Believe me i waited for 4 years since 2006 to see a 40% drop before buying into 2010 collection. So I'm not
    supporting Irvine but just curious.] unless this is one of the most desirable locations. In that case will all desirable locations [IRVINE]
    see such holding power in prices irrespective of what is happening in many other places in the country!!!!

2] Although money my not be coming from your butt, still 200K down on a rental property that you are generating
    almost 2X of expense is pretty cool. that to during the years when no down loans were so common in 2006.

3] I agree that prices in other parts of the world are much better than irvine. but this is what i have seen from my experience.
    when i moved from East to Irvine the prices here were about 2.5 to 3 times for similar homes. [that is what prevented us from jumping in
    back before bubble got into high gear]. somehow after the slow deflation of bubble for 4 years it seems that same 2.5 to 3 ratio is holding
    well still. even within the OC Irvine had a premium of 10-15% above certain other desirable OC location before and now.
    i guess everyone has to live where their jobs are and have to put up with what the going prices in that area are. 


Panda said:
SGIP and Trojan,

I have SFR rental property in northern Atlanta where i paid $550,000 in June '06. Property has been come down to around $475,000 today. I put $200k down and took a loan for $345,000. Today I pay an 5 year interest only loan at 5.625% which comes out to be around $1613 a month. My current rental income from my tenant is $3000 a month.

I got a call from a mortgage broker in Atlanta who can get me in at 4.875% 30 year fixed for a rental property where my payments will be $1817 a month. The catch is $1750 closing costs, $450 apprasial (loan to value must be 75%), $800 extra to waive escrows?

My biggest fear is by 2013 when my 5 year io loan expires, that the rates are at 9-10% and I can't sell the property for what i paid in 2006. The potential of the area is very optimistic (population and job growth) and since there are couple fortune 500 companies recently relocated near my rental, finding a tenant should be no problem.

My decision is to keep ride out my 5 year interest only loan until 2013 and cross my fingers
or go ahead with the 4.875 refi with the upfront costs. Is this no brainer to you guys. What would you guys recommend?

Any advice is appreciated. 
Click to expand...
Click to expand...
 
So i've decided to move forward with the refinance. Question to SGIP and Trojan... is there any junk fees you guys are seeing on my GFE that i may have overlooked? Are the closing fees reasonable for the amount i am refinancing for my investment property? Should i be worried about going forward with this? I usually get cold feet dealing with mortgage brokers.

Thanks  :)

2q1wadu.jpg
 
Panda said:
So i've decided to move forward with the refinance. Question to SGIP and Trojan... is there any junk fees you guys are seeing on my GFE that i may have overlooked? Are the closing fees reasonable for the amount i am refinancing for my investment property? Should i be worried about going forward with this? I usually get cold feet dealing with mortgage brokers.

Thanks  :)

2q1wadu.jpg
Click to expand...
The only junk lender fees are $350 processing fee and the $795 underwriting fee.  That being said, those fees are not out of line with most other lenders will charge, besides it looks like the lender is picking up the cost of the appraisal so it's that much better.  Looks like you are getting a rate of 4.75% at 0pts which is also fairly competitive.
 
Every lender is going to get their $1200 to $1500 in what are called "junk fees" from any transaction. It's usually hidden in the rate, or put on the GFE directly. The costs are reasonable and customary for every lender out there. When you have a relatively small loan ($200-$300k) it's hard to hide the fees in the rate because the rebates just aren't there to cover the hard cost of creating the loan. Loan Originators are paid on the Origination Fee or any rebates paid to them by the funding bank. The junk fees are paid to the bank that's making the loan, not to the LO.

4.75% for a 30 fixed non-owner occupied isn't that bad of a deal. Not SMOKIN, not a rip-off either. It's a market price and thus, a reasonable deal.
 
SGIP,
If i am required to rent my primary residence in order to qualify for the loan for my second home (which will be my new primary residence.) can I show a signed contract from the new tenant (with a security) that dates 2 month ahead of my closing date. Will the banks accept this? For example if my closing date is Jan 2, 2011, will the banks accept that i have a one year contract with a tenant starting from March 1, 2011 - Feb 28, 2012 for my primary residence?

Getting my refinance loan for my investment property has been an eye opening experience. With a 775 credit score, liquid assets double the loan amount, and a decent income... qualifying for the loan was not easy. It was a full blown audit of your finances, where i felt like i was completely naked in front of the lender. What I've realized in this whole experience is that Banks don't care much about the credit score and assets than they do about income. A flaw i see in this whole system is that the bank is more willing to lend to guy who is making $300k a year with no assets, than a guy who is making $100k with $2 million dollars in liquid assets.. no joke. I see in news that rates are at 4.375% and people aren't still buying. Now i see why. Many people want to buy at these low rates, but many cannot qualify. Within 2 years, I will not be suprised if the banks stop lending all together.
 
Highly doubtful that your bank will accept that kind of arrangement, but I've seen stranger things happen. This tenant must be gold plated. Show that they are renting currently. Get a letter from the tenant, not just an agreement plus security deposit (which must be cashed BTW) but something from them saying why they intend to rent. You may even have to get a rental survey - if you have not already - from an appraiser to ensure your rent is market based.  Did you advertise it anywhere? Show the UW that you made a good faith effort to rent the property via the ads you placed.

Yes, getting a loan today is NOTHING like it was 2002-2007. The way you get loans today is how you did from the dawn of man to the early 2000's. What was once old is now new again.

I had a similar situation with a $100k income, $2m semi-liquid accounts with 50% down where his DTI was nearly 70%. When I told this repeat customer of mine that we could not do his loan, the F-bombs went a'flying.  That's the world we live in.

My .02c

Soylent Green Is People.
 
Only listen to the little voice inside your head and no one elses when considering a cancellation of purchase. This is a very personal decision, not a corporate one.

You could pay cash for the home, then refinance in 6 months (rates will still be low...), put more than 50% down so you will qualify, then put a HELOC on the property (depending on State rules...) to re-capitalize yourself.  It may be less costly to pay off your current home which then reduces your DTI while putting the normal 20% down on the new house. With rates in the mid 4's, you could also buy a 4.0% rate for about 2.5 points. Any combination of these should overcome either your cash concerns or your DTI issues.

The bigger question is this: What price peace of mind? There is zero reason to rush into a purchase even if it's low priced. A great deal on a home is a terrible one if you stay up nights pacing the floors worried about that monthly nut. Run the numbers every which way - even using the scenarios above - and see what gives you the highest comfort level allowed. If none of the financing scenarios work to soothe your worries, the little voice is clearly telling you something.

Best,

SGIP
 
You must log in or register to reply here.
Back
Top