Refinancing

With today’s economic and financial situations the way they are, we as consumers are learning to stretch every dollar and cut every corner to find a way to live within our means.

Not surprisingly many turn to refinancing their home mortgage as a way to do this.

Things to consider when looking at refinancing:

1.   What is the current financial picture on your home? – Realistically you will need to have some equity in your home, banks look for at least a 90% loan to value, for a refinance to make sense and unfortunately due to the housing boom and subsequent crash many homeowners now have *“upside down mortgages” meaning they owe more on their home than the current housing market believes it to be worth.

2.   Where does your current credit score fall? – While a bad credit score doesn’t kill a loan, it is definitely part of the deciding factor. The larger banks, although still willing to work with you on a case to case basis, for the most part will think harder before doing a refinance on a home where the owner has a low fico score because they are considered a bigger risk.

FICO SCORE TABLE:

300 to 619 -	Poor
620 to 659 -	Fair
660 to 749 -	Good
750 to 850 -	Excellent

 

The days of no documentation loans and high appraisal figures are all but gone. Sub prime lenders took a bath on high risk loans so now the burden of paperwork and *proof of being able to make payments falls squarely on the shoulders of the homeowner.
A bank will generally want you in the 640 range before considering an application.

3.   Do current mortgage rates beat the rate I have? – This is the easy one, if your current mortgage rate is lower, it’s probably best to stay with it if you don’t need any immediate cash out, if the rate is lower, than this would definitely go in the plus column as a reason to head out and at least talk to a loan officer.

4.   Do I have the financial picture that lenders are looking for? – After determining that you are ready to finance the next step is determining if you are what banks consider “a good relationship loan.” A good way to determine this is to know what banks are looking for.

A Good Loan Relationship Consists of:

• A steady, verifiable income.
• A 90% LTV although a 50% LTV is what the banks consider ideal.
• Credit score of 640 or higher:
• Full documentation for:
• Self Employed: 2 years taxes, 2 years W2’s, 2 months bank statements for proof of assets.
• Salaried: A months worth of pay stubs, 2 years taxes, 2 years W2’s and 2 months bank statements for proof of assets.

What are the benefits of refinancing

1. Lowering your interest rate and lowering your payment – Every little bit counts now a days and having a lower interest rate and payment will undoubtedly help to ease the burden of the monthly bills.
2. To help you out financially – If you’re at a point in your life where a little extra cash is needed, cash out refinance could provide you with that much needed boost.
3. Cash out for home improvements – Home improvement not only benefits the homeowner but can also help the resale value of a home. With rates lower than they have been in a while getting cash out to improve on a home has again become a viable and attractive option.

If you’ve determined at this point that refinancing is right for you the next question becomes “When should you refinance?” and the answer is, “there is no better time than the present.” Current market rates are at an attractive low and a lower interest rate and payment can only help to better a homeowner’s financial picture.

Right now mortgage rates are at a very nice place where refinancing your home and getting out a little extra cash can look tempting. So if you can get a better rate and payment than you have currently and your current home loan and credit fall into place than this is a great time to strive for a lower mortgage payment.>

Current Rates?

Fixed Loans -As low as 4.75 with points – up to 5.825 with a 0 point loan.

Adjustable loans – 4.7 with 1, 5, 7 and 10 year adjustable with a balloon payment payable at the end of the term.

Do remember to stay in a payment you can afford though. This should be easier than it was in the past due to the fact that the adjustable rate mortgages no longer have a tempting teaser rate to get you in the door.

Given that you’ve done your research, you know the benefits, the bank or mortgage company views you as a good candidate and the time is right for you to refinance it should be easy to take that next step of putting the wheels in motion to set up the refinancing of your mortgage.

Stepping into a new Mortgage?

Consult with a loan officer – All bank branches have them and they train them extensively to be able to share their knowledge on types of loans, rates and what will work best with your financial situation. In addition to the banks there are also several mortgage centers out there that specialize solely in mortgages for homeowners.

It’s a matter of personal preference whether you choose to refinance with a bank or a mortgage center both have their benefits.

Refinance Options:

• Traditional rate and term refinance - this is a refinance done solely to lower your current payment and interest (no cash out)
• Cash out refinance – this refinance can be used to obtain cash out for purposes such as vacations, sending kids to college, home improvements or simply to bank money in savings for a rainy day.

In your meeting with the loan officer they will go over your entire financial picture and current credit obligations with you to ensure that you aren’t headed into a loan that will be detrimental to your financial future. Accurate documentation will help them to determine what rates make sense for you and a good loan officer will help you sort out the rates that aren’t going to serve you in the long run.

They will go over fixed versus adjustable rates plans with you and together you can decide how to make your refinance a worthwhile thing.

(*upside down mortgages do have other options, since they would not qualify for a traditional refinance. If you have an upside down mortgage you could look into a loan modification.) (*A homeowner’s income will need to be verifiable by a reliable source.)