Refinancing My Mortgage - Part Two

“Have you ever been late on your mortgage payment?” That was one of the first questions I was aked when I talked to the loan consultant about my refinance.

This conversation took place in early November and I still had not paid my October 15th payment.  I had seen a copy of my credit report before and there were no mentions of late payments, even though I had been accessed late fees on some accounts.  I had read somewhere that it was payments that were 30 days, 60 days, or 90 days late that really hurt your credit.  I told her that I had never had a payment that was 30 days late, which was true.  In fact, this was the most late I had ever been.

She told me that my mortgage company did not report to the credit bureaus, so they would have to call them to ask if I had any late payments.  She asked if I knew what my mortgage company considered a “late” payment, which I did not.  She suggested I call them and ask, because any late payments on my mortgage would lower the amount she could loan me on this refinance.

I called the company that has my mortgage and they said that they gave customers a 15-day grace period before considering a payment late.  This worried me some since I had gone over 15 days on this payment.  I told him I was trying to refinance and he said it would look a lot better for me if I could have that October payment made before the refinancing bank called to ask about it.  I told him I’d mail a check the next day.  He took the check number and amount of the check and put it in their system, so that it would at least be noted in their system if the call was made before the check arrived.

A couple days later, the loan representative called to say that an appraisal would have to be done on my house and that I’d have to pay a $395 application fee to set it up.  This money is supposed to be refunded to me once the loan is made.

After the appraisal was done, she called to say that the house appraised for a lot more than what I had estimated, which she said was a good thing.

All the paperwork she had sent me before was about a FHA loan, which would pay off $107,000 of my debt for a payment of $1010 (which would include my property taxes, my homeowners insurance, and private mortgage insurance (PMI)).

PMI is insurance that protects the lender writing the loan in the event the buyer defaults on their loan. The theory is, the higher the loan to value ratio (amount loaned vs. the value of the home), the less invested the buyer is and the more likely they will default for any assortment of reasons. Paying for the PMI is required on a FHA (Federal Housing Administration) loan until you get the loan to value ratio down to a certain point.

She said that since the value was appraised higher, she could offer me a conventional loan for 80% of the value of the house.  Conventional loans require a 20% down payment, so that’s why she could refinance at 80% of the value.  With the conventional loan, I would not have to pay for PMI.

By changing the loan type, they could pay off $123,900 of my debts and the payment would be $1060.00 (which would include my property taxes and homeowners insurance).

That meant that for an extra $50.00 per month, I could get rid of an additional $16,900 in credit card debt and more would be going to principal, since I wasn’t paying for PMI.

After we agreed that was a better deal, she emailed me some more papers to sign and fax back.  A couple days later a third-party closing company called me to set up a three-way conference call with my mortgage company.  The mortgage company refused to give them information about my account without me on the line, so once we were connected, they asked me a few questions to confirm my identity and then the closing company asked them a few questions, such as when the loan was first made, what was the balance then, what was the balance now, when was the last payment made, etc.

Later that night, I got a call saying the loan was completed and they would send a notary to our house to sign the closing papers. The whole process took 17 days to complete.

I’m just glad that I never fell too far behind on my payments.  With a bad payment history, I believe this loan would have been harder to get, the loan amount could have been lower and I’m sure the interest rate would have been higher.