QUOTE (markjabari @ Feb 26 2011, 08:08 PM)
We bought a house a few years back but could only get a 5 year loan, the interest was 4% which is good, we really wanted a 30 yr but the banks weren't being very helpful as it was when the S was hitting the fan. They slapped us with a Mortgage insurance which I've been trying to get rid of but since the house lost some value they want more money down and its too much right now so we're basically stuck with the MI. Ok so here is my question.... when the 5 yr load ends, what happens?? We will have to get another loan obviously but what if the house is underwater and they require money out of pocket to put into it to get the new loan and what if its too much?? Is the house lost? Are we forced to sell it or get it forclosed?? The situation isn't even that drastic but Im just thinking worst case scenario. I see the aprs are going up especially the 30 yr ones and it has me worried. Any experts on this??
Before I answer your question, let me just state I use to underwrite for fannie mae, and I also ran my own retail mortgage brokerage.
The loan you have is either a 5/1 or a 5/6 Adjustable rate mortgage. What it means is that the interest rate is fixed at 4% for the first 5 years. When the 5 years is over the interest will adjust based either on the 1 month libor or the 6 month libor. Usually the 5 year fixed is an interest only loan, meaning during that time you are paying only the interest portion of the loan and not the prinicple. The reason why the bank gave you this loan at the time is most likely because the monthly payment on a 5 yr fixed is lower than a traditional 30 yr.
Now if you have MI that means the loan to value of your house is over 90%. Hopefully your house is not upside down in terms of equity. To avoid MI your LTV has to by under 80%. If you want a good 30 year fixed interest rate you really should have a 80% or less LTV, a good fico 700+, and also your debt to income needs to be under 38%. The monthly payment will be higher then what you are paying now because you be paying interest plus principal.
First thing I would do is to an appraisal or a prelim valuation of your property value. find out what your LTV is and if you are eligible for a refi. You will have to bring money to the table if you are upside down on the property or if your LTV is above the maximum underwriting requirements. You will not lose your house if you continue to make monthly payments, but interms of refinancing you will be out of luck. Your only option on a upside down property is to do a short sale by negotiating with the lien holder
This post has been edited by adstalker: Jul 12 2011, 03:14 PM