With mortgage rates at historic lows, many people are considering refinancing their existing mortgage, especially if they originally obtained the loan at a higher interest rate. It is true that mortgage refinancing will lower your monthly payments in many cases and (with careful planning) you can take advantage of the new loan refinancing programs to significantly reduce your cash outgo. Before you refinance, however, it is important to understand what programs are available and which is best for your particular needs.
Compare Mortgage Refinancing Rates
Most people start the search for a new home loan online. While this first step to exploring refinancing options may be very helpful to understanding your options you still need to understand the different elements of qualifying for a mortgage and the costs associated with a new home loan. Simply comparing interest rates is never enough and can often lead you into programs which end up costing you thousands of dollars in unnecessary fees.
Understand your Credit Score
You should always know your credit score well ahead of shopping for a new mortgage loan. It is always a good idea to “clean up” your credit prior to applying for a loan by reviewing your credit history and disputing any inaccurate information. This can actually save you thousands of dollars over the life of your loan, as your interest rate is directly tied to your credit rating.
Always Speak with Current Mortgage Lender
You should also talk to your current lender first. Many lenders are more than willing to refinance your loan to a lower interest rate in order to keep your business. You can often get a refinance without an appraisal or other costs associated with new lenders, and save yourself hundreds or thousands; plus, you will be dealing with your current lender, with whom you already have a working relationship.
However, even if your current lender is willing to refinance you still need to shop around and compare all your options. While credit requirements have tightened for most lenders, there are still plenty of good deals out there if you are willing to take a little time to look for them.
FHA Refinance
One of the most prominent lenders in the nation is FHA, or the Federal Housing Administration. FHA loans are historically lower in rate and more flexible than many bank-owned loans, and since they are guaranteed by the federal government, if you can qualify for one you are likely to be approved quickly. These loans will provide up to 97% of the value of your home, so if you have a substantial amount of equity, it is also fairly easy to be approved. FHA loans are often given to first-time homebuyers, making them a great choice for younger homeowners, who often find it difficult to find good rates with conventional lenders. The requirements for an FHA loan are fairly strict, so it is important to research and see if you qualify for an FHA refinance.
VA Refinance
If you are a veteran, you may also qualify for a VA loan. VA loans are only available to veterans, but they offer as much or more flexibility with payment options and low rates as FHA loans. Like FHA, VA loans are also guaranteed, so many lenders are willing to underwrite them. Talk to a VA loan representative to see what your VA options may be.
Refinance Options for Homeowners Underwater
If you do not qualify for an FHA or VA loan, there are other options for you to consider. In 2008 and 2009, Congress passed bills which set up the “Homeowner Affordability” plan in response to record foreclosure rates. The new HARP, or Homeowner Affordability Refinance Program, allows homeowners to refinance up to 105% of the value of their homes. The reason for the 105% is that many homeowners found themselves “upside down” on their mortgages, meaning that they owed more on the house than it was worth after a drop in value because of the depressed housing market. If you are upside down on your mortgage, you may be forced to come up with substantial cash to refinance through a commercial lender; a HARP refinance may make more sense.
Compare Mortgage Companies
If you do not qualify for any government-backed programs, it is time to consider traditional mortgage lenders. Keep in mind that most lenders will “hide” significant refinance costs in the terms of the loan, and these costs can add up quickly. A good rule of thumb is to see if the fees you will pay, divided by twelve, will be absorbed in your new mortgage with a years’ worth of payments. If the figure you determine, added to your new payment, is more than your current mortgage, it may very well be that this is not the mortgage for you.
There are many websites dedicated to sending your application to numerous lenders, who will then bid on your refinance loan. The higher your credit rating, the more lenders you will have vying to give you low rates. However, always be sure to examine each offer carefully for hidden fees before making a decision.
Compare Mortgage Refinancing Rates
No related posts.
