Should You Refinance This Summer?

 

Are you trying to decide if you should refinance your existing mortgage this summer? Well, we can help in your decision! In order to ensure the best outcome, it’s best to be informed of the refinancing process and how it can potentially benefit you as a homeowner. Otherwise, refinancing could be a costly mistake if you don’t do your research.

Refinancing costs

You need to consider the costs for refinancing in order to determine whether or not it will be worthwhile for your particular financial situation. Unfortunately, you must be willing to invest some money in order to save in the long run. Be prepared to pay multiple refinancing costs that include filing, credit checks, application fees, title examination costs, and appraisal fees.

 What are the possible benefits to refinancing?

• Lower monthly payment
• Tax benefits
• Lower interest
• Obtain cash
• Consolidate debt

Should you refinance?

There isn’t a clear cut and dry answer to whether or not you should refinance without looking at the smaller details. First of all, if you are planning to move in the next few years, refinancing may not be for you. You want to reside in the house and keep the new loan long enough to reap the benefits, and this may take a while.

If your credit score has greatly improved since your original mortgage loan, it may be a great idea to take advantage of low refinancing rates. Also, if you have high-interest loans that you wish to pay off or get a lower rate, refinancing may be a good option. It’s not a good idea to refinance simply to get cash to go on vacation or buy a new luxury car. Refinancing is a good option for those who want to pay for college tuition or get a shorter mortgage.

Right now, you have an opportunity to get some great mortgage rates through refinancing. And don’t forget about HARP, which lets borrowers refinance even though they may owe more than their home is worth. Keep in mind that the borrower's loan must be owned or guaranteed by Fannie Mae or Freddie Mac. HARP expires at the end of December in 2015.

What To Do If Your Mortgage Refinance Application Is Rejected

Just because a lender has turned down your application for mortgage refinance, you don't have to lose heart. In fact, by fixing the problems and improving your finances, you should be able to get refinance from another lender.

When a lender rejects your mortgage refinance application, the first thing you need to do is to find out why it was rejected. Fix those problems and apply again.

The lender can refuse your refinance application for several reasons. Here are the top five reasons:

-The current value of your home is less than the amount you owe on your mortgage.

-Your credit score may be less than satisfactory.

-You cannot prove your income.

-You have listed your home for sale.

-The lender suspects that you are not earning enough to cover your expenses.

While some of these issues can be fixed quickly, others may take time.

You are underwater

If you are underwater (i.e. the value of your home is less than the money you owe the lender) you have basically three options:

Tell your lender that you will make a down payment. So, for example, if the current value of your home is 90,000 USD and you owe 100,000 USD on your mortgage, you will have to make a down payment of $10,000 to cover the difference. In addition to this, you have to bring the customary down payment. Most lenders insist that the buyer should contribute at least 5% of the value of the property.

Make sure that the appraisal is accurate. All information (square footage, number of bedrooms, bath) in the appraisal should be correct. If there are amenities like a deck or a patio, a large lot or energy efficiency features, you need to ensure that they are properly valued.

The HARP refinance program helps homeowners who are underwater on their mortgage. See if you are eligible for that.

Your credit score isn't satisfactory

Lenders have increased the minimum credit score required for getting a mortgage. Your credit score may not have changed in the last few years; however, it may not be high enough to refinance your current mortgage.

If your credit score is lower than 620, getting a refinance is difficult. In fact, some lenders only consider borrowers who have a credit score of 660.If you have a credit score of 740 or higher, you will get the best possible rates.

How to increase your credit score

Pay your bills before they are due. You should also pay off your credit card debts.

Consider getting an FHA loan. These loans require larger down payments and may also have higher interest rates. However, they take borrowers with a low credit score.

You can't document your income

Lenders will ask you to prove every source of your income. In order to ensure that every source is considered, you should mention all sources of your income on your tax return. You will need to submit your income history of at least two years to refinance.

You don't earn enough

Lenders compare your monthly income and monthly expenses to determine your debt-to-income ratio. You can increase your ratio by reducing your expenses or increasing your earnings. You can perhaps borrow money from your relatives to pay off your debts. Or you should consider getting an FHA loan. An FHA loan will consider the incomes of other family members who are ready to co-sign the mortgage.

You have listed your home

If your property is already on the market getting a refinance is nearly impossible. However, many lenders will consider your application if you are ready to take the property off the market. Some lenders will make you wait for 60 days, even after taking the home off the market. If you have already listed your home for sale, you will probably want to find a lender who doesn't wait for 60 days.

If none of these strategies work, you should wait until the refinance boom ends. When lenders aren't all that busy, they are more likely to entertain your application.

 

The Changing World of Refinancing

In the mid 2000's, getting a mortgage was a whole lot easier. Back then, borrowers were not required to have a good credit history. Even those who couldn't afford to make a down payment could get a home loan.

The underwriting norms were rather relaxed and more people could buy homes or get their existing mortgages refinanced. Some borrowers who saw good appreciation in the value of their homes drew out some of their positive equity and splurged that money on luxury cars or boats.

But then the recession arrived.

During the recession, several people lost their jobs and consequently many of them had to default on their mortgage payments. The value of properties, too, eroded. This forced banks to become more cautious and selective. Now getting refinance is not all that easy. Serial refinancing has become a thing of the past.

Recovering economy

The economy soon started showing signs of recovery and many people who lost their jobs during the recession are back to work. The value of homes, too, has increased. This has encouraged banks to relax their lending norms a bit. Now homeowners who are underwater on their mortgage payment are eligible to get refinance if the value of their home is slightly higher than their original loan amount. Even owners with negative equity are now eligible for refinance through HARP 2.0.

If you are planning to get a refinance, you should be prepared to deal with a lot of paperwork.

Refinancing now

Refinancing your existing mortgage is now difficult. It is still possible, but now banks have more stringent underwriting norms. Gone are the days when they would readily approve each and every application.

More paperwork

Refinancing now involves a lot of paperwork. Banks now require detailed documentation of your income because they are legally responsible to prove that you will be able to repay the loan. As a result, the borrower now has to submit additional documents like tax returns, pay stubs and bank statements.

Your credit score

Ten or 15 years ago, people who had little or no credit were eligible to get a home loan.  But now you need a good credit score. If your credit score isn't satisfactory, you should improve it before trying to get refinance. You should also get a credit report. There may be errors or inaccurate information in it. Your credit score will improve when you get those errors rectified.

Borrowers should also have a good idea about the value of their home.

Longer waiting periods

Now that rates are at their historic low, lenders are getting flooded with numerous home loan applications. Consequently, getting an approval now takes much longer. You can, however, speed up this process by responding quickly to document requests. Any delays on your part can cause your rate lock to expire. You will probably have to pay extension fee as well.

If you are paying too much interest on your fixed-rate mortgage, you are a good candidate for refinancing. When you refinance, you get to enjoy the lower rates. While choosing a refinancing deal, don’t forget to compare rates and fees. To get the best possible deals, you need to stay abreast of the latest happenings in the world refinancing.