Sunday, July 8, 2012

Refi Setback

By dint of nagging more than one overly optimistic sales person, we got our home mortgage refinance paperwork started at no cost to us. Lots of papers, secret passwords, and e-mail messages were sent and received, and bank statements and a few other papers were found to add to the bundle. Numerous good faith documents were initialed and signed, and then a pleasant gentleman came to our home to do an official appraisal.

A week later, our loan officer called to say our home value was not sufficient for the type of loan we’d applied for. This was a little disappointing, but since the appraised value is more than what we owe on the house, even if we sold it today at that price we’d walk away with some money after the real estate agent was paid. Add in the value of living in the house for eight years and deducting the mortgage interest from our taxes, and I’d say we’d come out ahead. But we would not have a huge fistful of dollars to fling at the next house.

That’s the rub about declining home values. For the middle class, the family home has always been the one asset likely to appreciate. I say “likely” because twice in my family the exact opposite occurred. Two houses in two separate city neighborhoods fell victim to a changing racial makeup and to a dramatic loss in single family usage, too.  It’s nice to know we aren’t under water on this house. Nice to know our home only lost 17% of its value from the purchase price we paid. And nice to think that in a few years, it’ll probably regain that value. Usually, one buys a house to live in it for a while, and usually, that pays off with a big capital gain.

What surprises me, given the disclosures we made about our financial situation when we started the loan process, is that our loan originator did not suggest any other type of loan after the appraisal came in. True, we could not qualify for the no closing costs loan unless we made up the shortfall to a loan-to-value of 75%, which we have no interest in doing. This is hardly the time to become cash poor and land rich by throwing big wads of money at the principal owed on a home. Not unless you plan to live in that home until you die. And even then, depleting liquid capital isn't a good idea. Yet we would have qualified for a straight mortgage loan with closing costs, points, and PMI  (private mortgage insurance). How much more sales effort would he need to make to turn us into paying customers? Perhaps this loan sales guy only is empowered to sell one kind of loan, but I find that hard to believe. 

What did we gain or lose out of this refi attempt? We gained knowledge of what our house is likely worth today, plus or minus a few amenities and cosmetics. We could have gotten this from a real estate agent, but it’s asking a lot of somebody you don’t plan to do business with to give you a professional opinion. It’s close to cornering a doctor at a party and talking symptoms. Real estate agents today are very busy with all the short sales being picked up by speculators. Even if the housing market never recovers to its crazy 2005–2006 level (and it will, but by then perhaps those dollars won’t mean as much), this is an excellent time to invest in real estate. Prices are at historic lows, and sellers usually are so desperate they will make all sorts of monetary concessions. Ten or twenty years from now, we’ll be hearing about people who made huge fortunes in real estate during this recession. So, yes, real estate agents are busy.

Meanwhile, we’re looking for another loan. Now that we’ve struck out with the bank that we send our mortgage checks to, we have the entire world of banking to choose from. It’s a bewildering array of choices.

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