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Fha Loan, Real Estate Pro in Palo Alto, CA

Why the loan agency ask higher Loan-to-Value ratio for zero cost refinance ?

Asked by Fha Loan, Palo Alto, CA Mon Jan 7, 2013

I purchased a house 6 months ago with 4.5% interest rate, I paid 25 % down payment (75% LTV) for $256K purchase price and currently my current loan balance is $190K. During purchase my loan agency appraised the property at $285K. Now I can refinance the same property with 4 % interest from the same loan agency but they want the house to re-appraise at least $285K in order to do zero point, no cost refinance. I don't see the logic, can someone explain. Thanks

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Steve, that is a lender overlay. Fannie & Freddie guidelines will permit using the current appraised value 1 day after purchasing. A lot of lenders want 6 or 12 months of ownership in order to use new value though, so I get where you are coming from.
1 vote Thank Flag Link Mon Jan 7, 2013
It makes no sense, because you typically go off of the 'lesser of sales price or current value' within the first 12 months following a purchase.
1 vote Thank Flag Link Mon Jan 7, 2013
There is a break on interest rates at 65.01-70% LTV, so if the value comes in to where the LTV is 70.01-75% the interest rate would end up being higher. Ask them if they can just give you a 4.125% no cost rate if the LTV comes in higher. $190k vs. $285k is 67% LTV... so I wonder if they are either including some of the refinance costs (such as the new escrow account reserves, pre-paid interest, etc.) into the new loan amount so you don't have to pay them out of pocket) or if they are just bad at math.

Shane Milne | Lending in all 50 states | NMLS #81195
1 vote Thank Flag Link Mon Jan 7, 2013
Thank you Shane, this makes a lot of sense. I will ask to see if I can get 4.125% with no cost if home somehow appraises less than $285K this time. Even though, house prices dramatically spiked in that market after my purchase I have not been lucky with appraisers so far and I have this gut feeling they will appraise lower for my luck.
Flag Mon Jan 7, 2013
If you financed any of your closing costs your laon balance could be higher than you borrowed. You should ask your loan officer to explain why they are asking this. They should easily be able to explain their own policies.
1 vote Thank Flag Link Mon Jan 7, 2013
Thank you Scott. I asked them and waiting to hear their reasoning but I just wanted to hear what the Trulia community thinks. Yes my purchase price went up a few thousand dollars due to closing costs included in the loan but what they are asking is disproportionately higher.
Flag Mon Jan 7, 2013

The Loan Officer simply asked for lower LTV to get this rate with no Lender's fee. If 75% LTV, the rate could be higher or fee is involved.

Lamson Dang
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0 votes Thank Flag Link Sun Jan 13, 2013
Sheryl how did you come up with refinancing from 4.5% to 4.125%, you totally misread everything I wrote. I will save more than $1,500 each year by a zero cost refinance, it is a great deal and I will possibly sell the property within 8-10 years or earlier.
0 votes Thank Flag Link Fri Jan 11, 2013
So you refinanced from 4.5% to 4.125%? That doesn;t make sense to even refinance?
0 votes Thank Flag Link Fri Jan 11, 2013
They require only 75 % LTV
0 votes Thank Flag Link Fri Jan 11, 2013
I wanted to give you all the most recent update about this dilemma. The loan agent was looking at the wrong numbers, she corrected herself saying that I can refinance this rental property with zero cost and 4.0 % rate. I already locked the rate and paid application fee which are all refundable at the closing. I think the terms are good, I have another rental property loan from the same bank at 4.125 %.
0 votes Thank Flag Link Fri Jan 11, 2013
Your not going to pass the net tangible benefit guideline to the borrower.
Sheryl Arndt, Real Estate Broker - Sr. Loan Officer CA only
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0 votes Thank Flag Link Mon Jan 7, 2013
You would need to ask the lender this. You can also call some other lenders to get what their policy is regarding refinance. Is it owner occupied? If not that may be the reason. Also, if you are refinancing without any out of pocket expenses, then they will be adding that to the balance, so your $190,000 will be higher.
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0 votes Thank Flag Link Mon Jan 7, 2013
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