Refinancing home FHA & closing costs seem very steep

Asked by Re427, Virginia Mon Feb 16, 2009

Got out of bankruptcy a year ago with a refi at 13% Payments made perfectly on time & I can afford them. Now that my credit is better, I just want to get a lower rate & some cash back. New loan offered by mortgage broker (same one I used above) is FHA $ 104,000 at 5.5 % - payoff is $81,000 & closing costs are a little over $ 9,700 !! Add in early payoff penalty from current bank, it doesn't seem worth it. Payments will be about $300 lower/month but that is not the issue. This is like 10 points correct?? Does this sound right to you?

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Doug Stalker, , Pleasanton, CA
Tue Feb 17, 2009
Just looking, I would suggest some investigation on your part. As Matthew pointed out can be as much as a 2 point hit for a credit score below 620. If your score is above 620 than a 2% discount seems out of line. If your score is below the 620 level your options will be limited as many lenders have tightened up on scores and many will not look at a score under 600. If this is you circumstance you may want to explore some quick strategies to improve your score. I have some information on my blog at the link below.
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Matthew Tetl…, , Michigan
Tue Feb 17, 2009
I think that your overall costs are out of the normal range. You can call a local title company, probably the one you used last time and let them give you an idea on property tax prorations. The banks usually will hold an extra 2 months in reserves for increases. Your upfront MIP insurance is standard and can not be increased for profit, so I am sure that is ok. However 2% discount is quite steep, there are hits for credit scores, and cash out which I am assuming reflects your circumstance, but can't say for sure. I would try one more time to negoitae with your loan officer and have them explain in detail your closing costs and prepaids. If you are not satisfied with the explanation, then either go to some one higher up, or shop around for a better deal.
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Re427, , Virginia
Tue Feb 17, 2009
The BK was a 13 & refi allowed me to payoff a year early but with terrible int rate. The closing on the new loan @ 5.5 just has several fees that just look weird, like $ 500 for a survey?? I am not buying a home, why a survey?? A loan discount fee @2% of $ 2,060 I mean is this average on a $ 104,000 loan??
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, ,
Tue Feb 17, 2009
Doug is right. your 1.75% UFMIP (up front mortgage insurance premium) plus your taxes and insurances they need to set up, PLUS the hit for your credit score to get you to the 5.5% can get pretty steep.

My biggest concern is that you’re only out of BK 1 year. FHA is pretty strict on the 2 year policy and will only make an exception with extreme circumstances, i.e. Death, Severe illness or dismemberment that caused you not to work for an extended period of time, etc. Divorce or layoffs don’t cut it anymore as a good reason.

Look likes Doug knows what he is talking about, I would give him a call
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Marty S, , Irvine, CA
Tue Feb 17, 2009
That is VERY high. What are your property taxes and insurance like? What kind of fees is he charging. I would shop around.

I am a mortgage broker. If I can be of service, please let me know!

Martin Smith

Precision Funding
877-238-6324 Ext 704
877-238-6324 FAX
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Doug Stalker, , Pleasanton, CA
Mon Feb 16, 2009
Hi Just Looking,
Your scenario raises several questions before we even get to the cost. FHA currently requires that your bankruptcy, if it is a chapter 7, be discharged for at least 2 years before they will finance you. This would be my first concern. I am assuming your previous loan was NOT an FHA?

As to cost, you need to keep in mind that you are not just looking at the cost of the loan and closing, but also what are referred to as your prepays. These are amounts collected up front to set up an escrow/impound account for your insurance and property taxes. FHA also has an unusual structure for mortgage insurance wherein a portion, usually 1.75% or the total loan amount is charged and although this amount is added to your loan it is reflected in the closing cost figure. The other factor is what you will do with the cash. Are you paying off high interest credit? This would go into the analysis for me to determine if this is a good investment or not.

My recommendation is to ask the question about the BK time frame. If you did a 13 and paid it off a year ago you would be ok on that front. Get a written estimate of the closing cost and, if you like, you can have me give you an opinion on it. Send me an email and I'll send you my fax number or you can email it to me.
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