How to Refi Underwater Mortgage with PMI

by Britney H. from Federal Way, Washington

Ask Kate how to refi your underwater mortgage with PMI: Hi Kate, What an awesome website you have created, loaded with useful information for lost homeowners like myself who need to refinance. How do we find out what we are eligible for, who can help us, and how to get the best mortgage rate.



Britney continues... My husband and I bought our first house in 2006 for $320,000 with no money down and we have PMI. Our current rate is at 6.5%, our house is probably worth about $245,000, and we owe $295,000.

We have excellent credit and have never missed a payment on our mortgage or anything else for that matter. What is our next move? Thank you so much for your help. Sincerely, Britney H.

Kate Answers: How to Refi Your Underwater Mortgage with PMI

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Dear Britney,

Thank you for the kind words about my website.

Get Your Best Mortgage Rate is indeed a labor of love and empowering homeowners has become my mission.

Qualify Your Mortgage Lender

Before you get started in the process of refinancing, consider this. You are first going to qualify the lenders before you choose one to originate your mortgage.

It's not uncommon for homeowners and home buyers to feel intimidated by the mortgage process. And of course, I have quoted the golden rule many times, "He who has the gold makes the rules."

But the flip side is that mortgage companies are in the business of originating loans. Without borrowers, lenders would have to shut their doors and go home. So enter into the mortgage process with confidence, a no beg-zone you might say. Now to answer your questions...

Not All Mortgage Lenders Are Equal

Britney, you asked how to find out what you are eligible for. Let me tell you a story first.

I once suggested a hot mortgage program to a new customer who worked in the insurance industry. He thought it meshed with his goals but was leery of my motivation. So he asked, "Are you getting paid more to put me in this mortgage program? Will you win a prize for the highest number of applications?"

My company did not allow such competitions being a federally-insured institution but I thought they were excellent questions. When he realized my only motivation was to match his eligibility to the best program, he jumped at my offer.

But in order to be impartial, a lender needs an arsenal of products. This helps prevent steering a borrower into a less-beneficial loan. So look for a well-rounded lender who can originate HARP II, FHA refinances, VA mortgage loans for Veterans (if applicable), and traditional products like the conventional 30 year fixed rate mortgage.

Finding a Mortgage Lender

Your 2nd question is "Who can help us?" If you go to 6 Steps to Comparing Mortgage Rates, you will see my formula for shopping and comparing mortgage lenders online. Near the bottom of that page, you will also see links to pages written by visitors to this site, sharing their personal secrets to finding mortgage lenders.

Getting the Best Mortgage Rate

Okay now! Here is a big mistake often made when shopping for a mortgage - Trying to get the lowest mortgage rate!

This is why I named my website, Get Your Best Mortgage Rate instead of Get Your Lowest Mortgage Rate.

What do I mean by this? If you pay thousands of dollars in closing costs to get the lowest quoted interest rate, what happens when unforeseen circumstances cause you to prematurely refinance or sell your house? All of the money you paid (thousands probably) to get what seems like an awesomely low rate, just went down the drain. It happens more often that you might think.

By comparison, what if you get the best mortgage rate at the lowest cost? Ah yes, now we're talking! But to know how to do this, you must understand Good Faith Estimates.

Luckily, I explain the various sections to the Good Faith Estimate form at Understanding Mortgage Closing Costs - Little Know Secrets. Read through it at least three times. Then bookmark it in your favorites.

Ask lenders for a written and signed Good Faith Estimate of mortgage closing costs (GFE). Refer back to this page, again - Understanding Mortgage Closing Costs - Little Know Secrets as you compare the numbers.

Don't get caught in the trap of getting a 4% quote and assume it's superior to a 4.5% quote. You have to compare apples to apples, in other words rates and fees on one Good Faith Estimate to another.

In closing, make this your mantra, I am going to shop for the best mortgage rate at the lowest cost.

Ask Kate & Link to Kate

Britney, you or anyone else can Ask Kate a question or skip to the bottom of this page to add a comment.

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Best wishes,

Ask Kate

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I asked when we purchased the home if we were going to have a PMI and we were told no.
by: Lindsey

Hello Kate, my husband and I are trying to refinance and the bank we currently have our mortgage with says we have LPMI.

The problem with that is I asked when we purchased the home if we were going to have a PMI and we were told no.

I have gotten all of my old papers out from the closing on the house and can't find anywhere that shows we are paying it or the lender is paying it. I guess I'm asking, where is this located on closing documents?

Hi Lindsey, Kate here...

Try getting help from the escrow (or attorney, depending on your state) who closed your transaction to see if they can point out any reference to Lender Paid Mortgage Insurance (LPMI) on your closing statement. Their name will be printed on the statement.

Or call your loan servicer (good luck with this in advance) and request the signed document from your closing paperwork confirming you acknowledged the presence of LPMI.

Lenders, in the past, often told borrowers there was no PMI when in reality, there was LENDER paid mortgage insurance. And we know how that's working out for homeowners like you.

(Not to confuse anyone, Lender Paid Mortgage Insurance IS paid by borrowers, not in a monthly premium but in a higher interest rate.)

Best wishes. Be tenacious.

Sincerely, Kate

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You can also ask Kate about your mortgage at Refinancing Advice The Nuts and Bolts.

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