Today, we’re bringing you the first in a series of
Midwest Money answers from Ali and Christine, based on their new book, How To Speak Money: The Language and Knowledge You Need Now. (Each person whose question is used will receive a copy of the book.)
Our first question is from Anjana Kapoor of Sterling Heights, Mich. She writes:
I have a underwater mortgage that I am trying to get refinanced, but have been unable to so far. I have been punctual in my payments so far for 8 years, and I still have to pay PMI (personal mortgage insurance). Please let me know how I can get rid of it and refinance my house.
Ali and Christine respond:
Anjana, you are smart to try to tackle the biggest hurdle to growing your wealth — that underwater mortgage. It will take many hours of hard work and false starts to get it done. No one, and we repeat, no one, has told us this was an easy or fair process.
One successful refinancer told us it took her more than 100 hours of paper work and phone calls. But it is worth it if you qualify. How do you know if you can do it?
The first question you need to ask is how much equity do you have in your home? You need more than 20 percent equity to adjust or remove the PMI. The more you pay down the more equity you build. Bottom line, keep building your equity.
The next question you need to ask is, what kind of mortgage do you have?
If it’s a federal home loan, then there is government-supported assistance to refinance and/or adjust your loan. Take advantage.
Start by going to recovery.gov and other sites with information about your loan.
If it’s a private loan, there are fewer options, and you may want to explore a short-sale option. A really diligent real-estate broker can help you with this.
Ryan Mack, a certified financial planner with Optimum Capital Management (and University of Michigan graduate) says to keep at it, even if you have failed before. With private bank loans, timing is an issue; you may need to press the same banks periodically.
Your loan may look unattractive to a bank in the fall, and the same bank may look on it favorably after the New Year. You need to be persistent shopping your loan with banks.
Remember to keep your FICA credit score high throughout this; that’s really important. Even one missed credit card payment can stay on your credit history for as long as seven years. For a loan officer on the lookout for any unusual or risky behavior, this may well disqualify you.
Don’t max out the cards either, even if you them off in full at the of the month. That, too, makes you look risky to the banks.