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refi from private financing

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  • refi from private financing

    We bought a home from a family friend. They financed the loan personally at what at the time was a lower than average rate for jumbo loans with 0% down... 3.85%. Closing costs were significant because of taxes, title ins, etc., (but no lender or realtor fees) but we paid them outright and they were not rolled into the loan. The only catch was that they want us to pay them off in 4 years, though they said if we get in a bind they can extend the loan... the idea was to get our dream house now and never move again, and that we'd have enough equity in 4 years to get a good refi.

    Fast fwd a few months, and that rate looks less appealing. but we just closed in april. the LTV is close to 100% based on last appraisal, we MAY have 3-5% in equity after renovations. i'm being offered 3.875 on a 15/1 arm w/ 1k closing and .75 points at 100% LTV on a jumbo. That last bit is the kicker. Rate is meh, but finding the 100% LTV over 1m is almost impossible so far.

    on the one hand, the rate difference is negligible, and we'd lock into a much longer loan (we plan to pay off in 20 yrs or less), which helps in case we go into a recession and the value of our house tanks and we end up with negative equity (we are on the water in HCOL area) when the current private financing timeline is up.

    on the other hand, we JUST paid these closing costs, i hate paying points, and if the market doesn't tank, it's not the right thing to do right now. also most of our value is in the land. the house is average but the land value is high and generally stable (a lot of waterfront and space in general right in the city).

    thoughts (other than "why aren't you living in a tent/you bought too much house/this was dumb")????


  • #2
    Assuming you can make the monthly payments on the home/land, I would do so for a minimum of a year, then determine if you can get some combination of lower rate/extended tenor once you build more equity.  Getting financing from an external source is a calculation of the cost versus the perceived benefit of extending the tenor of the loan.  With 20% equity it is likely you would have additional options from an external funding perspective.


    • #3
      Dont think we will have 20% equity in 4 years though. Hoping to knock out student loans in that time period instead of extra principal


      • #4
        You plan to pay it off in less than 20 years, but don’t expect to have enough in 4 years (a combination of principle diwnpayment, property appreciation, and savings) to be able to do a traditional 80% LTV mortgage?


        • #5
          yes. because we'll be paying off student loans the next 4 years, and then putting that money (3k/mo) toward principal plus expected increase in salary.


          • #6
            Also worried about property appreciation with gloom and doom about economy. Dont want a 2008 where we cant refi because house is worth 70% of what it was...