“My husband and I bought a home about four months ago with a first-time home buyer loan.

We put very little money down, so we have mortgage insurance. Our parents think the home is already worth a lot more and told us to check with local lenders to see if there’s a way to get rid of the mortgage insurance.

Is it too soon or is this the right time?”

Without realizing it, you touched on many different subjects with your inquiry.

I’ll try to summarize a few of the answers and point you in the right direction. To start, congratulations on buying your first home. That’s a great accomplishment.

Since it’s difficult to assume whether or not you had a strong application for financing at the time of your purchase, this is where you want to dig deeper with your lender to find out if any past weaknesses in your file have actually improved over the past four months. When you refinance, you want to do such with an optimized application to chase the best terms.

For example, your credit scores and income levels are always major components of your file. If you spent too much during the holidays on your credit cards or filed your 2015 tax returns in such a way that lowered your useable income for lending purposes, both could impact your ability to refinance into a different type of loan program that is better than what you have now.

In addition, if you had limited funds for a down-payment at the time of your purchase, you may want to bolster your reserves before proceeding forward as well.

In regards to the mortgage insurance, it depends on if its government- or private-issued.

Typically, government mortgage insurance requires you to refinance your home in order to remove it whereas private mortgage insurance usually doesn’t necessitate a refinance to eliminate it from your monthly payment.

However, if your note rate is substantially lower on your government-insured loan, then sometimes the combined payment might still be better than a conventional loan with little to no private mortgage insurance. Of course, there are plenty of variables involved in this sort of analysis, which your lender should cover with you, as they are ultimately tied back to the strength of your overall application.

Lastly, appreciation of a home that exceeds what is normal in a local marketplace can be a red flag to the appraiser and your lender.

Unless there were substantial improvements done to the home, supported by acceptable documentation, then the appraiser is left with the task of determining a new value based on appreciation growth alone.

Perhaps your home was purchased at an auction or negotiated down to below market value at the time of sale. Either way, your lender will look very carefully at the appraiser’s report. In fact, properties with rapid appreciation growth might trigger your lender to request a secondary appraisal to confirm the new value of your home.

Chris Salese can be reached at chris@delsurmortgage.com or (707) 363-4439. He is a licensed California mortgage banker (NMLS 254469/1850 CA BRE 01377933/01215943) and equal housing lender.

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