My first refinance under the new Mortgage Modification programs was for an investor property in the Bronx.

 

An old client came to me to discuss buying a new home for her primary residence last week. She is financially responsible and over the past few years has increased her salary by 30%, paid off most of her debt, but was not able to save much money other than the required 401-K. She currently rents an apartment in New York and owns a single family home where her family lives but does not pay any rent. This home is an investment property that certainly loses money for my client and we need to include 100% of the housing expense in her liability section when qualifying her for the mortgage on her new home.

 

The large expense she pays towards the investment property eats into her monthly salary and reduced the amount of the loan she would be able to get for a new home, thus limiting the price range of homes she could shop for. The new home she was looking for would require a mortgage of $300,000. When calculating the total debt including the investment property, she could only get a mortgage for $250,000. After careful analysis, we discovered that she has a 20 year mortgage at 6.75% interest rate on the investment property. By refinancing the investment loan to a rate of 5% for 30 years, we were able to reduce her monthly payment by $300. By reducing the payment, she would be able to qualify for the $300,000 mortgage on her new home. You could discuss that she was stealing from Peter to pay Paul, but that is not the story here. What we are talking about is that she can refinance her investment property under the new REFI PLUS Program.

 

The REFI PLUS Program includes investment properties, much to my shock and amazement. I am not exactly sure why it does but here I am doing one the very first week!  What are the extra charges? The lender will change the appropriate hit for loan to value and credit score and one point for investor properties. Two caveats are that the property must have been owned as an investor loan prior to the refinance and the borrower must have a renter’s insurance policy added to the homeowner’s policy. Easy right?   

 

In this case, the client is getting a better mortgage by reducing the interest rate and term of the loan. She is not taking any cash out and her loan to value is under 60%. For an investor loan, this might be a rare breed, so I do not know how many other investor loans will really qualify for this program. In addition, I am not sure how many investor homes will be saved by this program or simply reducing the payment by a few hundred dollars a month. In fact, this could just be prolonging the inevitable?

 

 

Dale Siegel