In the last few years, Tucson home values went up. At the same time, interest rates dropped. If you purchased your property three or four years ago, you are probably sitting on a very nice bit of equity. First-time homebuyers tend to utilize an FHA loan because it allows you to buy with less than 20% down. But that also means paying PMI (private mortgage insurance). Now might be a good time for you to consider your Tucson home refinancing options. Like just about everything else, it comes with its pros and cons. Think about all of these before converting your FHA into a conventional loan.
Tucson Home Refinancing
First, refinancing from an FHA to a conventional loan allows you to drop the PMI. This could save you several thousand dollars a year in mortgage interest. As long as you refinance less than 80% of the value of your Tucson home, you no longer pay PMI. So, let's say that your property appraises at $300,000. You owe $200,000. You can finance up to $240,000 and still stay within that 80% window. With an FHA loan, PMI stays with you until you either pay it off or sell your home.
Let's say you still want to refinance to take advantage of lower interest rates but you owe more than 80% of the value of your property. Even then, conventional loans charge a lower PMI than FHA loans. Then, once you reach a 78% loan-to-value ratio (owe 78% of the value of your house), the PMI drops off altogether.
Closing costs. You can't avoid them. Appraisal fees. Title insurance and fees. These fees range between 1.5% and 3% of the loan. It's just like buying a house but without a downpayment due.
When deciding whether or not Tucson home refinancing is for you, weigh your expenses against your gains. How long will it take to recoup your closing costs? How much are you saving each month? If you save $500 a month and you pay $7000 in closing costs for the refinance, you need to be in your home for at least 14 months before you break even on the refinancing. When the refinance saves you more per month, it takes less time than that to recoup. Talk to your Tucson REALTOR® or your lender to determine the best course of action to take.
Rebecca Schulte, Schulte Real Estate Group, Your Source for Tucson Real Estate