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What does it cost to refinance? What are the benefits?
Ever heard the old rule of thumb, you should only refinance if your new interest rate is at least two points lower? That may have been true years ago, but with refinancing dropping in cost over the last few years, it's never the wrong time to think about a new loan! Refinancing has a number of benefits that often make it worth the up-front expenditure many times over.
When you refinance, you might be able to lower your interest rate and monthly payment -- sometimes significantly. You might also be able to "cash out" some of the built-up equity in your home, which you can use to consolidate debt, improve your home, take a vacation, etc. With lower rates and balances, you might also be able to build up home equity faster with a shorter-term new mortgage.
All these benefits do cost something, though. When you refinance, you're paying for most of the same things you paid for when you obtained your original mortgage. These include settlement costs and other fees, an appraisal, lender's title insurance, underwriting fees, and so on.
You might pay points to get a more favorable interest rate. If you pay (on average) three percent of the loan amount up front, your savings for the life of the new mortgage can be significant. You should be aware that the IRS has recently said that points paid for the purpose of refinancing your mortgage cannot be deducted in their entirety in the year you pay them, unless the refinanced loan is primarily for home improvements. Consult your tax professional before deducting points you pay on your new mortgage from your federal income taxes.
Ultimately, for most people the amount of costs to refinance are made up very quickly in monthly savings. Contact us today and we'll work with you to determine what program is best for you, and what makes the most sense considering your overall goals.
You, can get an idea yourself by using our refi calculator under the calculators section of our website to estimate your savings, but do not hesitate to lean on us to help you understand what is the best option.
What kind of paperwork and records will I need to complete my loan application?
There are a number of personal and financial documents you will be asked to provide for your loan application to be processed as quickly as possible. These documents generally cover your income, debt, residence and personal identification. Review the list below to make certain you have the documents available for processing your loan application:
There are a number of personal and financial documents you will be asked to provide for your loan application to be processed as quickly as possible. These documents generally cover your income, debt, residence and personal identification. Review the list below to make certain you have the documents available for processing your loan application:
Personal Employment history, including locations of employers, for the past 2 years.
Addresses of your residences for the past 2 years, as well as landlords, if appropriate.
Social Security number
Financial
Addresses of your residences for the past 2 years, as well as landlords, if appropriate.
Social Security number
Financial
Copies of all bank statements for two months.
Copies of W2's and tax returns for two years.
Pay stubs from your employer covering the last 30 days prior to completing your loan application.
Copies of W2's and tax returns for two years.
Pay stubs from your employer covering the last 30 days prior to completing your loan application.
If you are self-employed, or compensated by commissions, you will need to supply your federal tax returns for the most recent year you filed, and the year preceding that one (2 years total).
What is a credit check?
Credit check is simply a check of your previous history of meeting your financial obligations. All lenders are required to obtain at least two credit reports from two different sources to assess your ability to repay the mortgage loan. The primary credit reporting companies are Experian (formerly TRW), Trans-Union and Equifax.
Credit check is simply a check of your previous history of meeting your financial obligations. All lenders are required to obtain at least two credit reports from two different sources to assess your ability to repay the mortgage loan. The primary credit reporting companies are Experian (formerly TRW), Trans-Union and Equifax.
What is meant by the term "debt ratio"?
This is simply the sum of all you owe on a monthly basis, divided by the sum of all your income. For example, if your monthly net income totals $4000, and your monthly debt for credit cards, loan payments and other obligations totals $1000, you would have a debt ratio of 25%.
This is simply the sum of all you owe on a monthly basis, divided by the sum of all your income. For example, if your monthly net income totals $4000, and your monthly debt for credit cards, loan payments and other obligations totals $1000, you would have a debt ratio of 25%.
Most conventional loans require a debt ratio of about 40% or lower. Generally, government loans from FHA or VA allow for a slightly higher debt ratio, although the amounts these agencies lend is lower than conventional lenders.
What is "Fannie Mae," "Ginnie Mae," and "Freddie Mac"?
Fannie Mae is the Federal National Mortgage Association. Ginnie Mae is the Government National Mortgage Association. Freddie Mac is the Federal Home Loan Mortgage Corporation. These are organizations that buy loans from lending institutions and are thus able to offer interest rates generally one-quarter to one-half of a percentage point lower for borrowers who qualify. They comprise what is called the secondary market for home mortgage.
Fannie Mae is the Federal National Mortgage Association. Ginnie Mae is the Government National Mortgage Association. Freddie Mac is the Federal Home Loan Mortgage Corporation. These are organizations that buy loans from lending institutions and are thus able to offer interest rates generally one-quarter to one-half of a percentage point lower for borrowers who qualify. They comprise what is called the secondary market for home mortgage.
What are the current Fannie Mae and Freddie Mac conventional loan limits?
These limits are set by the federal government for each region of the country.
These limits are set by the federal government for each region of the country.
What are FHA and VA?
The FHA is the Federal Housing Administration, an agency that offers loans to borrowers who may not be able to qualify for a conventional loan. The VA is the Veterans Administration, which offers loans to qualified veterans, with a lower minimum down payment.
The FHA is the Federal Housing Administration, an agency that offers loans to borrowers who may not be able to qualify for a conventional loan. The VA is the Veterans Administration, which offers loans to qualified veterans, with a lower minimum down payment.
What are the maximum FHA and VA loan amounts?
These limits are set by the federal government for each region of the country. If you are thinking about applying for one of these loans, check with your local or regional FHA or VA office for the loan limits in your area.
These limits are set by the federal government for each region of the country. If you are thinking about applying for one of these loans, check with your local or regional FHA or VA office for the loan limits in your area.
What is private mortgage insurance?
Private Mortgage Insurance (PMI) protects a lender in the event of default and is generally required on loans over 80% LTV.
Private Mortgage Insurance (PMI) protects a lender in the event of default and is generally required on loans over 80% LTV.
What is the advantage of using a direct mortgage lender for my home loan?
Direct mortgage lenders make their money by selling loans to institutional investors in the secondary market. Because these companies usually deal directly with these investors, they can most often provide the most competitive rates to home buyers.
Direct mortgage lenders make their money by selling loans to institutional investors in the secondary market. Because these companies usually deal directly with these investors, they can most often provide the most competitive rates to home buyers.
What is an ARM?
Adjustable Rate Mortgage. This type of mortgage allows borrowers to pay a smaller monthly payment at the beginning of the loan. The interest rate on the loan will be adjusted periodically according to one of the major financial indexes. Some adjustable rate loans include a provision for the loan to be converted to a fixed-rate loan within a certain time frame.
Adjustable Rate Mortgage. This type of mortgage allows borrowers to pay a smaller monthly payment at the beginning of the loan. The interest rate on the loan will be adjusted periodically according to one of the major financial indexes. Some adjustable rate loans include a provision for the loan to be converted to a fixed-rate loan within a certain time frame.
What is a fixed-rate loan?
This is a mortgage in which the interest rate remains the same for the life of the loan, usually a period of 30 years, although fixed rate loans for a 15-year period are becoming more common.
This is a mortgage in which the interest rate remains the same for the life of the loan, usually a period of 30 years, although fixed rate loans for a 15-year period are becoming more common.
What is a settlement statement?
This is a statement from the lender that must, by law include virtually all information related to your loan. It includes a summary of both borrower's and lender's transactions, plus the gross amount of the loan, a listing of all taxes due, deposits for payments of taxes, and all money due or to be exchanged by buyer and seller at the closing of the loan
This is a statement from the lender that must, by law include virtually all information related to your loan. It includes a summary of both borrower's and lender's transactions, plus the gross amount of the loan, a listing of all taxes due, deposits for payments of taxes, and all money due or to be exchanged by buyer and seller at the closing of the loan
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