Harsh Reality of Housing Bubble Bursting
Over the past few weeks rates fell low enough that I was able to lock in on a 3.5% 30yr fixed mortgage refinance with no closing costs* on our primary residence. We last refinanced in 2010 @ 4.375% for a 30yr fixed. I personally prefer no closing costs loans because it makes the refinance decision process easier: if you can refinance for a lower rate, with same term and no closing costs, then you will come out ahead.
Once I locked in the rate, the refinance process was full steam ahead. I've heard a lot of folks comment about how difficult the loan approval process is these days and was expecting it to be more difficult. However I found that it wasn't significantly more difficult than previous loan applications except that we had more assets/accounts that we had to document. Not that I'm complaining.
Our loan was approved in about a week and we scheduled the appraisal. I was slightly concerned about the appraisal value as the last refinance we did a cash out refinance to pay down a higher interest mortgage on one of our rental properties. However I was thinking worst case I would need to contribute ~$15k to the loan to restore it to 80% LTV if the appraisal was on the lower than expected side. After all the appraisal in 8/2010 had the house value at $320,000 so as long as the house appraised at $290,000 or above I we would be in good shape. I was expecting the new appraisal to come back in the $295k-$310k range.
Well I was hit in the face with an email last week indicating the new appraisal came it at $270,000. Ouch! The appraiser is indicating that the house has dropped $50k in value in the past 25 months. That hurts. I'm going to file an appraisal appeal, but been warned that appraisals rarely get revised. After that, I'll have to look at my options to see what makes sense.
*To clarifying no closing costs technique used, I accepted an above market interest rate (3.5%) for a credit equal to the closing costs associated with the refinance (origination fee, appraisal, recording fees, etc.
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