Refinancing? What Are You Waiting For?

As interest rates continue to stay at record lows, many individuals are taking this opportunity to refinance their existing home loans.  In comparing their costs among potential lenders, one large cost remains constant: recordation taxes.  For Virginia properties, they are calculated based upon the amount of your loan.  But what many people don't know is that a provision exists in the Code of Virginia that can offer relief from that cost, if certain circumstances are met.

The provision is §58.1-803(D), which states in pertinent part that "On deeds of trust or mortgages, the purpose of which is to refinance or modify the terms of an existing debt with the same lender, which debt is secured by a deed of trust or mortgage on which the tax imposed hereunder has been paid, the tax shall be paid only on that portion of the amount of the bond or other obligation secured thereby which is in addition to the amount of the original debt secured by a deed of trust or mortgage on which the tax has been paid...."  To state the statute in another way, if you are refinancing your existing home loan with the same lender that presently holds your loan then there will only be recordation tax on the amount that exceeds the original amount of the loan.

For example, say you have a loan with Jones Branch Bank and its original principal balance was $300,000.  You decided that you want to refinance your loan and you do so with Jones Branch Bank as the lender for your new loan.  Your new loan has a principal balance of $250,000.  What would be the amount you would be paying recordation taxes on?  $0!  That would mean you would have to pay only the Clerk of Court's recordation & processing fees, which are both constant and minimal regardless of the amount of the loan.

Using the same example, what if your new loan was $320,000 instead of $250,000?  In that case, you would pay recordation taxes on $20,000 (new loan amount ($320,000) - original loan amount ($300,000) = $20,000).

This is just one of many elements to consider in making your decision regarding your refinance, but it can be an important element in reducing your cost.  The key again is that it must be the same lender.  Without that criteria met, the statute cannot be invoked.

Feel free to contact any of the real estate attorneys, paralegals or legal assistance in our real estate department for further clarification on this issue or other questions you might need answered regarding your future refinance.

To view the referenced code section, the Code of Virginia, and much more, check out the Virginia General Assembly's Legislative Information System at http://lis.virginia.gov/lis.htm

Happy Holidays from all of us at Pesner Kawamoto Conway!

FHA Launches Short Refi Opportunity For Underwater Homeowners

WASHINGTON - In an effort to help responsible homeowners who owe more on their mortgage than the value of their property, the U.S. Department of Housing and Urban Development today provided details on the adjustment to its refinance program which was announced earlier this year that will enable lenders to provide additional refinancing options to homeowners who owe more than their home is worth. Starting September 7, 2010, the Federal Housing Administration (FHA) will offer certain 'underwater' non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least ten percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage.

The FHA Short Refinance option is targeted to help people who owe more on their mortgage than their home is worth - or 'underwater' - because their local markets saw large declines in home values. Originally announced in March, these changes and other programs that have been put in place will help the Administration meet its goal of stabilizing housing markets by offering a second chance to up to 3 to 4 million struggling homeowners through the end of 2012.

"We're throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined," said FHA Commissioner David H. Stevens. "This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product."

Today, FHA published a mortgagee letter to provide guidance to lenders on how to implement this new enhancement. Participation in FHA's refinance program is voluntary and requires the consent of all lien holders. To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth and be current on their existing mortgage. The homeowner must qualify for the new loan under standard FHA underwriting requirements and have a credit score equal to or greater than 500. The property must be the homeowner's primary residence. And the borrower's existing first lien holder must agree to write off at least 10% of their unpaid principal balance, bringing that borrower's combined loan-to-value ratio to no greater than 115%.

In addition, the existing loan to be refinanced must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent. Interested homeowners should contact their lenders to determine if they are eligible and whether the lender agrees the write down a portion of the unpaid principal.

To facilitate the refinancing of new FHA-insured loans under this program, the U.S. Department of Treasury will provide incentives to existing second lien holders who agree to full or partial extinguishment of the liens. To be eligible, servicers must execute a Servicer Participation Agreement (SPA) with Fannie Mae, in its capacity as financial agent for the United States, on or before October 3, 2010.

For more information on FHA Short Refinance option, read FHA's mortgagee letter

Published by the U.S. Department of Housing and Urban Development 8/9/2010 (HUD No. 10-173)