Refinancing a mortgage: Need 20% equity?

Question by Walter Carlos: Refinancing a mortgage: Need 20% equity?
Don’t know much about refinancing. I am currently on a mortgage alone, but would like to add my wife through a re-finance down the road. I went FHA because I didn’t have a down payment of 20%. If I try to go to my local credit union, are they likely to require that the home appraises above 20% of what I owe?

For example, let’s say I bought my home, through FHA and finance at $ 200,000. If market conditions improve by the time I’ve paid the principal down 5%, will a bank appraise at market values or will they appraise at the value I owe on the former loan? i.e. even if comps in my area appraise at $ 228,000+ they will appraise my home at my current mortgage encumbrance of $ 190,000?

I know appraisers typically “hit the target” or base their appraisals on the asking price of the sale. Not sure what happens with refinances. Do they try to hit the target of over 20% of what you owe or just outright deny the refinance if haven’t paid down 20% of the principal?

Best answer:

Answer by A Hunch
Yes, to refinance you will need at least 80% equity.
You can get this by the house increasing in value = so you have increased equity because it is worth more
Or you can get this by paying down the mortgage.

Add your own answer in the comments!

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3 Responses to Refinancing a mortgage: Need 20% equity?

  1. MVD34 says:

    First, assume appraisals will be tough, very tough. The industry is still reeling from the damage done by “hitting the target” in the bubble. They are likely to under appraise the value of your house if given any reason to.

    The 20% equity depends — you may be able to refi with less if you pay PMI or the FHA/loan underwriter equivalent. Works sort of like a mortgage to purchase in that sense. However, 100% refi’s will not be allowed except for VA loans. Assume you will have to have at least 5% equity and maybe 10%.

  2. Steve2 says:

    If you can, consider a 401K loan to get your loan to balance ratio where it needs to be to get a conforming loan. They are very cheap loans right now and your potential savings might be huge. Consider a second job for a few years to help with the 401K loan repayment or to reduce your principle enough to swing the refi.

  3. GVD says:

    You absolutely DO NOT need 20% equity to refinance, that is a 100% falsehood. In fact, if you have an FHA mortgage now, you don’t need any equity to refinance, it can be done with an FHA streamline that requires no appraisal. You will be able to add your wife very easily to your mortgage. If you choose to have an appraisal to see if you are at 20% equity, you can do that as well and have the mortgage insurance removed. The appraisal will be done at current market value using recently sold, like properties.

    Your best bet is to speak with a licensed loan officer and have them show you the options available. What you should really beware of is people on YA with gmail accounts and profiles that were just made, trying to steer you to places for financing.

    Mortgages are complex issues in this market, you won’t get accurate advice by random unlicensed people on a public forum.

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