Any out of the box ideas for getting a lower mortgage rate?
February 26, 2014 7:43 AM   Subscribe

I don't qualify for any of the recent government sponsored programs. I continue to drool over the low interest rates and want to know if there's something I'm not thinking of that I could take advantage of before rates start to crawl back up.

So, here's the relevant details. I refinanced my mortgage in 2006 at 8.75%. I had poor credit (in the high 5's), and my plan was to suck it up and pay the higher interest, and in two years when my house was worth more and I had repaired my credit, I would refi again at a reasonable rate.

Well, I was at least successful with the credit rebuilding, I'm now in the low-mid 700's. But the economy and real estate collapse didn't cooperate; my home value is now far too low. Current balance is about 195k, my guess on the home's value (based on tax statements and recent home sales in my area as found online) is 140k. I've put on a screen porch and deck, and plan to have the basement finished by the end of this year. At that point we plan to pay for an appraisal just to see where we stand at that point to see if there's any possibility the improvements will bump us back up to a break-even level, but frankly I don't see 50k value form the above improvements.

I've never been late on a mortgage payment. The loan is through HFC, and is not backed by Freddie or Fannie. After letters and phone calls, HFC refuses to even consider any kind of modification unless I become significantly behind in my payments, which I'm not willing to do after all the work rebuilding my credit. Mortgage is in my name only, but I've gotten married since the original refi. I have a sizable 403(b) but it is not liquid / loan eligible since it is an employer-sponsored pension. Savings exist but fall well short of what I would need to true things up. I'm not necessarily looking for principal reduction - I owe what I borrowed - but an interest rate closer to current levels could save us hundreds a month. None of my banks or my CU are willing to consider anything being we're so far under water. I'm pretty much resigned at this point to being depressed about it and hoping for the best come appraisal time, but wonder if anyone has some ideas I've not thought of that could help. We're in MN if it matters.

posted by SquidLips to Work & Money (6 answers total) 2 users marked this as a favorite
Everything is going to hinge on re-appraising your house. Once you can demonstrate that your house is worth 120% more than what you owe on it, you'll be eligible for a re-fi.

The other thing is where are the most recent comps in your neighborhood? Your improvements, plus any uptick in the value of homes in your neighborhood are going to determine the value.

Another thing to consider, the tax rates are NOT what you can sell your home for on the open market. They are only what we call in the analysis biz, "directionally correct". Tax rates only take into account square footage and yard size. Your house could be a show place inside, or a hoarder's dump, they'd have the same tax appraisal.

So finish up your renos and have the place reappraised. THEN start shopping around for a new mortgage.
posted by Ruthless Bunny at 8:20 AM on February 26, 2014 [1 favorite]

Also: it goes without saying that you want your property to be reappraised at the highest possible value to improve your loan-to-value ratio.

Do your renovations, do research on home sales and don't accept lowball valuations.

And definitely shop around. Here in the UK we used a financial adviser to find us the best rate the first time, and he got us a better rate from the lender than they published. When we refinanced three years later I ended up finding an even better one independently. Don't be afraid to enquire about how to make the rate better, what thresholds of loan-to-value or other options trigger a better rate.
posted by MuffinMan at 8:31 AM on February 26, 2014

I'm going through refi hell these days and I've noticed that lenders are very observant of how much cash you have in reserves. They want to see at least 6 months in the bank for at least the past 2 statements. Retirement accounts count but only 60% of the balance (because of withdrawal penalties etc).

So if you don't have that kind of cash on-hand, you might want to boost your savings before going ahead. Maybe you can find a lender that will accept 3 or 4 months if you're lucky but you'll need a broker that will do the footwork for you. It's frustrating - obviously the lower payment would boost your savings!
posted by JoeZydeco at 8:34 AM on February 26, 2014

It may be worth talking to your local credit union to see what ideas they have for you. They're used to helping people get qualified, and they'll likely have some good ideas. When you refinance, you should insist on a full appraisal not just a drive by. You can also use MLS to find comps of recent sales in your area for houses with similar renovations. If you need help gaining access, send me a memail.
posted by stoneweaver at 9:03 AM on February 26, 2014

my guess on the home's value (based on tax statements and recent home sales in my area as found online) is 140k. I've put on a screen porch and deck, and plan to have the basement finished by the end of this year.

I have had a class on real estate appraisal. You want to look at sales of houses that are as similar to your house as possible. Ideally, the same neighborhood, same size and same amenities. Things can vary wildly from one home to the next if the houses are substantially different.

You could also consider doing a little research on what types of improvements will add the most value. Some things, like a bathroom renovation or adding a second bath to a one bath home, are known to be good investments. Others, like adding an in-ground pool, typically cost more than you can get back when you sell.

Some of this will be specific to your neighborhood and your house. Bringing things up to the expected standard for the neighborhood will generally pay off pretty well. Being the most expensive, nicest house in the neighborhood to begin with means you can't add much, if any, because people will just not pay much more for X neighborhood.

I will also suggest that you consider looking at other ways to reduce your housing expenses or otherwise treat your house as an investment asset. Improving insulation value often saves a lot more than it costs. Growing a garden can reduce grocery bills.

I do not recall the title of the book, but I read a book years ago filled with ideas like that. So I suggest you do some searching and see if you can find a book like that or do some brainstorming and come up with a list of ideas yourself for how to get more financially out of being a homeowner.
posted by Michele in California at 11:34 AM on February 26, 2014

Try Costco Finance.
posted by Dansaman at 10:14 PM on February 26, 2014

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