Mortgage advice... Cash out refi or conventional loan?

momto3kiddosApril 25, 2013

I have been shopping around for rates since we are about 45 days out from closing on our house. I was under the impression based on input from several lenders that we would need to do a cash out refinance since we don't currently have a loan on the land and the builder is financing the build himself. My dad is building our home and had a line of credit that beat any construction loan rates around, so he is financing through the build. We are paying him at closing with the money we borrow and with some cash.

Between the land, which we own outright, our cash reserves and the appraisal value of the house, we will be borrowing less than 70% of value.

I should add that qualifying is not an issue based on credit score or income, so that is not affecting the quotes from different lenders.

One loan lender is telling me that we could get a conventional loan and it is 1/4% lower than other rates. I also have to escrow with this lender, which I don't particularly care to do. Should I trust him or go with another lender and the cash out refinance? I thought I understood this all, then someone tells me something different. Please let me know if you have any experience or knowledge that can help!

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If you don't already have a mortgage on the house, what are you refinancing?

I've never had to escrow with a lender if I had 70% equity. I'd go elsewhere.

    Bookmark   April 25, 2013 at 6:30PM
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I am going to be working under a similar arrangement. It is my understanding that it will be a refinance because you are basically refinancing a lien that is on your property. In my case, it is a construction loan through a bank but in the builder's name since the rate is so much lower and the bank will take a lien against the property.

I will be interested in how this works out for you. A few lenders that I have talked to seemed to be confused by this but my reading of the Fannie Mae rules shows it to be a refi. It may also depend on how long you've own your lot.

    Bookmark   April 25, 2013 at 9:17PM
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I am not understanding your question. You should be able to just do conventional loan (which will be lower % than a cash out loan) if you want to do a conventional loan. I don't think it should be tied. If you can get the money you need from a conventional, then you don't HAVE to do a cash out. If you WANT to do a cash out, well then, sure.

But, compare apples to apples. Cash out to Cash out at Bank A v B, not Conv at Bank A v Cash out at B.

You have 2 decisions--do you want/need cash out?
--Then, do you want escrowing bank or not.

    Bookmark   April 27, 2013 at 1:38AM
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