No closing cost refinance

[Mamm2]

I will soon be a single mommy: and need to get my life in order. I need to refinance my house, but I want to do that with no closing costs.

I did this many years ago with Wells Fargo (I need to call them) we refinanced with a lower interest rate with no closing costs.

Does anyone know of a legit mortgage or bank that will do this?

Thanks

[mightymoo]

I've heard of Coldwell banker's mortgage dept doing them, and east west mortgage, though I don't know anything about those two or how good they are. I forced washington mutual to do one, but they gave me a much worse rate for it as its something they don't usually do (we realized we wanted no closing costs much too late to change brokers, knew we would refinance soon anyway)

Our refinance was done through a local mortgage broker recommended by my financial planner, If you happen to be in MA, or a nearby state maybe, I can PM you his information, but I don't think he can do nationwide.

The key is just to watch them carefully - a true no closing cost loan has no fees. If you pay anything at closing it should only be prepaid interest and/or escrow fees. Prepaid interest has to do with the way they bill you for your mortgage - they bill you for the upcoming month, so for the first month, they want that interest before the month begins, in lieu of a full payment. Escrow might be necessary if they require you to have one for taxes and insurance (generally you get a lower rate for it) and you didn't have one before (they would roll the money from your old escrow into the new). Other than that you should pay nothing.

In addition, your loan amount should not increase. Watch out for that - sometimes they roll the fees into your loan, calling it no closing costs, what it really is is rolling the closing costs in, you are not only paying them, but paying interest on them as well.

No closing cost loans will have higher interest rates than ones with closing costs - the reason to do them is you feel that interest rates will go down enough to refinance before you would hit the break even point (the point at which you have the loan long enough that it would have made sense to pay closing costs and have a lower interest rate). I personally prefer no closing costs loans because I don't know what the mortgage rates will do and I don't know how many times I will pay unnecessary closing costs betting the rates will go up, so I err on the side of never paying closing costs.

[Mamm2]

Mightymoo thanks for your reply.

Do you recommend an ARM with no closing costs since I plan on selling in the next 3yrs?

I have heard such awful things about ARMS that they scare me and it tough to trust mortgage brokers...

Any advice is appreciated!

[khkelsey]

Countrywide has been advertising a no cost refi. We have had two mortgages and a heloc with them and have been very happy with their rates and customer service.

[mightymoo]

Originally Posted by Mamm2

Mightymoo thanks for your reply.

Do you recommend an ARM with no closing costs since I plan on selling in the next 3yrs?

I have heard such awful things about ARMS that they scare me and it tough to trust mortgage brokers...

Any advice is appreciated!

A 5/1 ARM is a great idea if you are sure you will sell before the fixed 5 year term is up and the rate is better than a 30 year fixed. If you aren't sure you will sell though, its a huge gamble with rates rising right now, and if the ARM is not a significantly better rate it might not be worth it.

If you know you are going to have the mortgage for only 3 years then you don't need to worry about the adjustable rate at all, as a 5/1 arm is fixed for the first five years, then becomes adjustable. Generally a 5/1 arm will have much lower rates than a 30 year fixed, but apparently they are governed by different factors and sometimes the rates can be pretty close, other times, much further apart.

When we bought our previous house we got a 5/1 arm because we knew we wouldn't stay longer than 5 years, and we ended up selling after 2, worked out very well.

[ShaggyDaddy]

Let me preface this by saying, I work for "the biggest home lender in america" doing risk analysis, and I am definatly NOT a risk taker.

here is the thing... everyone expects the worst of the "Exploding Arm Forclosures" is going to be december 2007.... That means in May of 2008 the market will likely be FLOODED with cheap forclosures for sale. It is already harder to get approved for a home loan, and it will get even harder by may2008. That means there are going to be a lot of underpriced homes, and not a lot of buyers. And nobody can really know how long this will last.

Personally I would never ever ever ever get an ARM. I would rather make 0% on an investment than end up with a mortgage I cannot afford and no buyer for my house.

Depending on your market, if you have 30-40% equity and are POSITIVE you are going to sell your house before the arm explodes, then it is probably going to be ok -- If you are willing to risk losing all of your equity by selling your house like it is on fire. Model your mortgage payment if your ARM explodes (Worst case scenario 10% for a refi, 16% for a Heloc), if you could still afford it, well then you could just stay in your house and weather the storm.

I am not trying to be a soothsayer or anything, but this is one of the models my company is prepared for, as the worst case scenario, and I plan personal finances based on the worst case scenario. And like I said, I do not take risks.

[mightymoo]

Originally Posted by ShaggyDaddy

here is the thing... everyone expects the worst of the "Exploding Arm Forclosures" is going to be december 2007.... That means in May of 2008 the market will likely be FLOODED with cheap forclosures for sale. It is already harder to get approved for a home loan, and it will get even harder by may2008. That means there are going to be a lot of underpriced homes, and not a lot of buyers. And nobody can really know how long this will last.

This is already the case in a lot of the country, a ton of underpriced homes on the market and no or few buyers. Though there are still some markets where homes are appreciating.

This is a good point though, something you need to consider. You think you'll sell your home in 3 years, but what if it takes a year to sell, what if you would have to sell it for a loss if you sold during this time?

[ShaggyDaddy]

Originally Posted by mightymoo

This is already the case in a lot of the country, a ton of underpriced homes on the market and no or few buyers. Though there are still some markets where homes are appreciating.

most lenders closed more 5 year arms than 3 year ones, the 3 year ones exploded last year... that gives us 2 years from the start of this economic downturn till the 5 year ones start to pop. And since they are going to happen during the already depressed market conditions... they will be much more severe. It is a little known industry fact that most of the foreclosures from this mess are NOT currently on the market. Banks are not liquidating foreclosures in high buck areas because all of their assets (loans written on adjacent properties) are valued based on comps (that is how appraisals work)... so if you are a bank, it is worth it to actually make the mortgage payment yourself on a few thousand properties than to lower the value of all your other assets in the area by liquidating foreclosures. It is a house of cards... if you try to get your money out, you will cause many other loans to fail. If one of the big banks folds (WaMu, Wells, BofA) every single home in the US will go down 30-40%... seriously.

I am fortunate enough to have bought in an apreciating market, with low home prices (Texas) so our house has theoretically appreciated, but it will still be very difficult to sell, but because of the price, there is no possible loan that would result in me not being able to make the payments.

I think it is very likely that there will be mass migration away from NY and LA, the home prices will hit their 15 year low in those areas, then all of the sudden those that survived the storm will start snatching up houses in NY and LA and the market will recover to "near-boom" prices very quickly, because the simple fact is that houses are not stock, they can't really ever lose all of their value, and as long as NY and LA are the way they are, there will be an infinite number of people who would put all their money on the line to live there.

So basically what I am saying is "We ain't seen nothing yet" and as long as you have set things up so you can always afford your house payment, you will benefit or at least not be harmed. This is why I will never have an ARM.

[Mamm2]

Thanks so much Shaggydog, Mightymoo and everyone else for your thoughts.

It is defintely something to think about. I am clueless about stuff like this, but I have no choice but to learn.

I currently have a 30yr fix at 5.35% and I hate to give it up but dh and I are getting a divorce. I am happy he has decided to leave me the house...but unfortunately, I have to refinance and the rates look so much higher...sigh.

I will rethink the arms...what I may do is do a no closing cost refi 30yr fixed(even if it slightly higher interest rate) to be safe. I guess I can always keep doing no closing cost refis when the interest rate drops until (if I am lucky) they drop to the low 5 again....

Shaggydog or anyone else do you think interest rates will drop or go higher?

Thanks!