As house prices continue to rise, the chance to refinance is ever more present considering favorable rates are still at historical lows. One the biggest dilemmas Sonoma County homeowners face is having a favorable appraisal valuation to refinance. Simple calculation any homeowner can do…

*Divide your current principal loan balance by .8,  doing so will support 20% equity. Before we dive into the intricacies, Making Homes Affordable is an important alternative because there is no loan-to-value restriction nor appraisal calculation necessary.

Harp 2 Refi

Under Harp 2 if the loan is owned by Fannie Mae or Freddie Mac, and the loan was delivered by June 1, 2009 or before, and a consumer has not previously used the program and its not an FHA Insured Loan, most homeowners are automatically eligible to refi. Supporting financial documentation will need to be needed, but there is literally zero loan-to-value restrictions. Consumers should research to see who owns their loans at  Fannie Mae’s site or Freddie Mac’s site . Don’t be fooled thinking you’re eligible for Harp 2 by a run-of-the-mill lender,  do the 2 minute leg work.

On most homes, taking your principal balance and dividing it by .8  will give you the value your house needs to appraise at assuming you’re not interested in paying monthly PMI, (most are not fans of PMI).  As such,  the calculation does not take into consideration monies for closing costs. If you take approximately 1.25% of your loan amount and add that to your principal loan balance, then divide by .8 that math can give you a better barometer of  needed value if you plan to finance the fees. If you can cash finance the fees, the .8 figure remains more accurate.

Running The Numbers

Two Easy Ways- Get A Calculator

*Cash Financing Closing Costs*

Take a principal balance of $301,234 and divide by .8 = $376,542 as the appraised value your house would have to appraise at in order for to refinance without mortgage insurance bringing cash to the closing table for fees.

*Rolling Fees In*

On the flipside, by taking the principle balance of $301,234 x 1.25% = $3765 (1.25% refinance closing costs amount is a bit high, but being conservative). $301,234 +$3765= $305,000 as a new loan (rounding up). $305,000 ÷.8 =$381,249 as the lowest value needed financing the fees.

 Chose Your Calculation For Refinancing On Home Occupancy

For our purposes these calculations are best suited for traditional conventional financing on loans up to $417,000 (assuming not Harp 2 Eligible).

Primary Home

• Worst-Case divide principal balance by .95%  indicative of conventional 95% loan to value financing,  in such a scenario plan on having monthly mortgage insurance (PMI)
• Best-Case divide principal balance by .8 indicative of conventional 80% loan to value financing

Secondary Home

• Worst-case divide principal balance by .9 indicative of conventional 90% loan to value financing, mortgage insurance (PMI) becomes applicable
• Best-Case divide principal balance by .8 indicative of conventional 80% loan to value financing

Investment Home

• Best & Worst Case divide principal balance by .8 indicative of conventional 80% loan to value financing (20% equity  or more is required on investment properties- mortgage insurance  unavailable)

By being able to compute these important numbers on the fore front of the process,  a smart consumer can get a wider range of shopping options available to them because they will know the approximate loan-to-value to provide mortgage lenders in their shopping efforts.

Is your loan larger than $417,000? Contact ScottS@snmc.com today for a confidential discussion. If you are researching rates, payments and scenarios, give us a shot at earning your business by getting a complementary mortgage rate quote, it’s free and fast.