Hello,
Right before the economy tanked in 2008 I purchased a house. My mortgage loan is a 2 year ARM. It is a conventional loan but even though I did not have a down payment, I do not pay a PMI. My loan is through my credit union. My current rate is 4.75. My LTV is at 97%. I have 26 years left on the loan. I would like to refinance. My question is:

1. Should I go with a 20 year FHA at 3.99% (and pay PMI) from an unknown lender or refinance with the credit union at 6%, also 20 year
2. How do I choose between FHA vs Conventional?
3. How do I choose between my credit union (who I know and love) and a lender who I do not know.

Are you underwater? How far?

I have not had an appraisal done yet. Truila says I am down about 10K. I have installed a new roof, built a new deck, replaced all windows and installed tiles in the kitchen...whcih Truila does not know of. My current LTV is 97%. My guess is the house will appraise right at what I owe if not a bit more.

Note: Houses pretty much retained their values in my area.

I'm doing an FHA loan right now and was told the current rate is 3.75 for 30 years. Is your credit okay? I can't imagine why it would be more for 20 years.

I would suggest that first you check to see if Fannie Mae or Freddie Mac Own/Insure your loan. You can check that at the following two websites:

Fannie Mae: http://www.fanniemae.com/loanlookup/
Freddie Mac: Google "Freddie Mac Loan Lookup" and it will be the first link (they won't let me post 2 urls)

If it is owned/insured by one of the 2, then you can potentially look at doing a HARP loan.

If not, which would be my guess since you didn't have mortgage insurance, then I would lean towards the FHA loan. Based on what you provided, and assuming a loan amount of $150,000 the payments break down as follow:

FHA 20 Year Fixed @ 3.99%
Principal & Interest: $917.26
Mortgage Insurance: $143.75
TOTAL PAYMENT: $1061.01
(estimated APR for disclosure purposes: 5.170)

20 Year Fixed @ 6.00%
Principal & Interest: $1074.65
(no APR estimation because this is not an interest rate I am quoting, just running payment)

So the FHA loan gives you a lower payment even with the mortgage insurance. And if you prepay your mortgage, then you should be able to get that mortgage insurance to drop off after the 60 months that FHA requires you to pay it. Also you should refer to a CPA regarding mortgage insurance being tax deductible.

HOWEVER, FHA has announced increases to their Mortgage Insurance Premiums (both Up Front and monthly) that start for FHA Case Numbers ordered on or after April 9th. This would increase your monthly payment to an estimated: $1080.32.

Lastly, keep in mind that FHA will only allow up to 97.75% LTV, so the appraisal would be the wild card.

Generally an FHA 20 year will have the same rate as the 30 year. Also, rates have increased dramatically over the last 5 days. Below is a link to the chart for the GNMA (Ginnie Mae) 3.5% MBS Coupon. The higher the coupon is, the better rates (and their associated costs) are for the consumer.

We have actually hit the low for the year right now, which means rates are as high as they have been this year as of today.

http://imageshack.us/photo/my-images/822/getchartc.png/

1) ANY FHA loan where you have a loan term of more than 15 years you will pay a MINIMUM of 5 years PMI. So if you get a big windfall you can't just knock out the mortgage and get rid of PMI. I wish I had known this before I went with FHA

2) Depends on your situation and cash flow. Unless you have 20% down I think conventional would be harder to get approved.

3) Go with your credit union usually... if you go elsewhere the is a possibility your loan will be sold and resold and you'll end up with the idiots at Bank of America.

Yes! I could have gotten almost the same loan term (rate + fees/points) at my credit union but thought I could get the loan closed quicker with a broker. I have no way of knowing if that's really true (I later heard that my credit union is actually pretty good at closing loans), but I do know that my loan has already been sold twice in six months. I chose the easier closing, 30 days of ease for 30 years of being "serviced" by a company not of my choosing.

No matter where you borrow from your loan could be sold. I personally would not bank with a credit union that never sold its mortgage loans. That is a recipe for disaster because they would be funding long term loans with short term deposits. It works fine during periods of declining interest rates but the situation implodes when rates begin to rise.

This is exactly what caused the savings and loan crisis in the US 20 years ago. S&Ls were taking advantage of falling mortgage rates during the 80s by lending money out at highly competitive rates. The money they got for these loans came from deposits that they paid lower rates on. It worked very well until rates stabilized and began to rise. The S&Ls were stuck with mortgages at low rates and had to pay higher rates on deposits. They could have just "held" and accepted lower profitability for a decade or so except the value of the mortgages shrank so that they had to attract more deposits with lower rates in order to maintain adequate capital ratios.

It is true the CUs have tended to hold their loans recently but it is falling rates that allowed them to do so. The well-run CUs will sell these loans as soon as the scent of raising rates is on the wind.