Cecily, Both Buyer and Seller in Altamonte Springs, FL

Refinancing an 80/20 interest only 3 year arm

Asked by Cecily, Altamonte Springs, FL Thu Jun 19, 2008

We bought our duplex home in 2005 and paid 174K for 956 sq ft. We have an 80% loan at 6.5 and a 20% loan at 10.5. Our finances are much better now and our arm will be up in may 09 so we would like to refinance to a more traditional loan but everyone I call says they cannot do anything for us. We have really good credit now and want a lower interest rate. You see tons of commercials on tv saying they can help you but it is the same story when I call, we do not have any equity in our home so they cannot refinance. We absolutely hate the location of this house and we have outgrown it already but don't think we can sell right now -what shoudl we do?? We are considering renting it out and buying a new one but we know we will not get enough rent to cover the 1200 mortgage (does not include tax and ins). HELP!!!!!

Help the community by answering this question:


Sounds like your property has depreciated a bit, or best case scenario you are still at 100% loan to value. In either case, banks no longer like loaning money on a home without equity.

I heard there may be a program through the FHA however that helps people in your situation, allowing homeowners to refinance at above 100% LTV in some cases. I heard about it many months ago through the Loan officer I recommend all my clients to. He's with Wachovia Mtg.

Another option you may have is to negotiate directly with your lenders to reduce the interest rate on your second, but I have not heard of anyone having much success with that. At the very least it would take you quite a bit of time and persistance getting in contact with someone at the bank that will actually listen to you.
Web Reference: http://www.gregtraub.com
0 votes Thank Flag Link Thu Jun 19, 2008
Greg is correct. FHA Secure (one of the bail out programs passed by Congress) has been expanded to allow a 2nd lien to be subordinated (which means it stays in place while the first lien is refinanced).

You could use an FHA insured loan to 95% of present market value, use it to cover the payoff on your first lien, closing costs, and a portion of your second lien. The reminaing balance on the second lien would be re-subordinated behind the new FHA insured first lien, and your combined Loan-to-Value ration could exceed 100% of your home's appraised value.

However, there are some problems:
1.) While FHA does in fact insure loans with CLTVs over 100%, very few if any lenders are willing to write those loans. Lenders are free to impose their own guidelines on top of FHA guidelines as the lender is responsible to FHA for the quality of the underwriting as well as performance of FHA insured loans. Very few lenders are willing to take on the additional risk of writing FHA Secure products.

2.) You must qualify for an FHA insured loan. FHA guidelines on qualifying income ratios are much more stringent than conventional loans, and judging from the rates you quoted from a 2005 origination, it sounds like your loan was originated with a subprime (and probably now defunct) lender. Back then, qualifying debt-to-income ratios were as high as 55%. FHA's maximum is 43% or higher if there are strong compensating factors such as liquid reserves.

What to do:
1.) Call your bank and ask if they have DE FHA Underwriters (these folks specialize in FHA underwriting and have more approval authority than non FHA DElegated underwriters). Then ask if they write FHA Secure. If answer is yes, go see the bank's mortgage sales rep.

2.) If the answer is no, hire a mortgage broker. You should interview several. First question to ask: Are you FHA approved? If not don't waste your time. Second question to ask: How many FHA Secure loans have you written? If the answer is "None" or "What is FHA Secure?", don't waste your time.

FHA Secure may be your best bet, but it will take some legwork on your end to find a comptent professional who knows the program and has the ability to underwrite and fund FHA Secure loans.

Even then you may not fit the program's guidelines. But first you have to find the mortgage professional who can give you the correct answer.
2 votes Thank Flag Link Thu Jun 19, 2008
When you say "we have really good credit now" do you mean your scores are over 620? How much does your home appraised for now...?
These are some of the details I need to know.....
call me if you like 407-657-9468
0 votes Thank Flag Link Fri Jun 20, 2008
Pay off the 20% loan ($34,800), if there are no pre-payment penalties. Then you should be able to refinance the 80% (assuming you house is still worth 80% or $139,200).
0 votes Thank Flag Link Thu Jun 19, 2008
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