Q: I have a refinancing question.

My husband bought our house 2 1/2 years ago and got an FHA mortgage at 6.75 percent. He put 5 percent down on the property. At the time he had very good credit but since then he went through a job layoff and almost lost the house.

His credit history and score took a big hit. He has been current on the mortgage for the past year so his score is in the mid-600’s and rising.

We just got married a month ago, I have excellent credit (mine is in the mid-700’s) so we want to put my name on the loan in order to qualify for a better rate. We have no other debt. The house has also appreciated from the $147,000 he paid for it to about $165,000, based on other houses that have sold in our neighborhood.

I would love to refinance to a conventional mortgage so we can get rid of the mortgage insurance as soon as possible, but I don’t know how that works with an FHA loan. We plan on staying in the house at least 5 years.

What would you suggest?

A: Your husband’s mediocre credit means you will have fewer options to refinance right now.

If you want to take over the entire mortgage alone, and have the income to support it solely, that is one option. However, I would caution you to have the property put in your name as well. You wouldn’t want to be financially responsible for the mortgage to a property you don’t own entirely. No matter how good your relationship is with your husband, that doesn’t make financial sense.

The next issue is PMI, which is the private mortgage insurance you pay with an FHA loan. The only way to get rid of it is to refinance to a conventional loan. But if you don’t have 20 percent in equity, you’ll have to have PMI or go with a piggy-back mortgage, also known as an 80/10/10 or 80/15/5. An 80/10/10 means you’ll have an 80 percent first mortgage, a 10 percent home equity loan and 10 percent down in cash. (The home equity loan and down payment part can be adjusted to suit your needs.)

The good news is you appear to have at least 22 percent in equity in the property, if you include the property appreciation and your husband’s initial down payment.

The property was bought for $147,000. Twenty percent of that is about $30,000. Right now, you have at least $33,000 in equity, if the property appraises out for $165,000. You’ve crossed an important threshold.

I suggest you talk to a respected local lender about which options will work for you. With a poor credit history, the cash you save on MI might be spent on an increased interest rate. On the other hand, by waiting another 6 months to a year, his credit score will continue to rise and you might be able to get much better loan terms.

Finally, since you’re only going to be in the property for 5 years or so, consider getting quotes on a 5/1 adjustable rate mortgage, which has a lower interest rates (but is still fixed for five years) than a 30-year loan. This way, there isn’t quite the same rush to refinance as there might be if you were looking for a 30-year mortgage.

Sit down with a lender and do the math. That’s how you’ll know whether to go for it or wait a few more months.

July 23, 2004.