There are certainly many advantages to a home loan refinance. If you have been in your home for awhile, there is a good chance that you have built up quite a bit of equity in your home. Even if it has not been that long since you purchased your home, if you live in an area where prices have appreciated considerably, you could still have a significant amount of equity in your home to tap into for a home improvement, purchase or to use for debt consolidation.
If you are considering a home loan refinance, it is important to know what you should expect. In some ways, getting a home loan refinance is not much different from getting your first mortgage with the exception that you already have the house! You will want to make sure that you look for the best terms and interest rates. In a similar fashion, the lender will want to make sure you are credit worthy before they approve you for the loan.
One of the first questions the lender may ask is why you are interested in refinancing. Be honest with the lender, because this may help him or her to design a home refinance package that perfectly suits your needs. Even if you are planning to consolidate your debts with your home refinance, be sure to mention this when you apply.
Be prepared for the fact that the lender will run a credit check on both you and any co-borrower in order to determine the level of credit risk you present. This is part of the process of becoming pre-approved in the home buying process. The lender will check your credit score and also check your credit report to determine the number of delinquencies you may have, the number of open accounts you have and the balances on those accounts.
The lender will also be interested in your income and various expenses. This is to ensure that you will be able to actually afford the proposed home loan payment. The underwriting guidelines for every lender are different; however, the general rule of thumb is that a prospective buyer should not have a debt to income ratio that is higher than 36%. Additionally, lenders usually prefer for your total housing expenses not to exceed 28% of your income. Of course, there are some exceptions to this rule. In certain circumstances, lenders will approve loans for buyers who have a debt to income ratio up to 40%. You can usually qualify with a higher debt to income ratio if you are able to make a larger down payment and/or if your credit rating is good enough.
To ensure there are no surprises when you sit down with the lender to discuss your home loan refinance, it is a good idea to check your own credit score in advance and be certain there are no mistakes or discrepancies before you submit your home loan application. If you do find any discrepancies, take the time to have them fixed before you apply for a home loan refinance.
By: Alan Lim
Posts Tagged ‘Home Loan’
Home Loans & Refinancing, Borrower Beware!
April 24th, 2010
Mortgages…if you are planning to purchase or refinance your home you should be very careful about the home loan you select. There are many gimmick loans on the market today like “interest only loans” and “negative amortization loans” which help people buy over priced property by the skin of their teeth. Having been a loan officer for a number of years in the past, I have often wondered why people just don’t stick to the traditional “30-year mortgage” and buy (or refinance) what they can afford. If you plan on buying or refinancing a home consider the following… In my mind, a 30-year fixed rate loan is better than a 15-fixed rate loan and here’s why… you have a lower monthly payment with a 30-year loan than a 15-year loan. What if something happens to your income?
Sure, you can pay a 15-year mortgage off faster but you have a higher house payment strapped to your back and if ANYTHING causes a reduction in your income you may find yourself hard pressed to make the house payment. Few people realize that you can pay off a 30-year loan in about 15-years by making 1 or 2 “principal only payments” on a 30-year loan each year. The key is that you decide whether you can afford to make those additional principal payments rather than being obligated to higher monthly payments under a 15-year loan. You may pay a slightly higher rate on a 30-year loan but the comfort level and flexibility of a 30-year loan may be worth it. Adjustable rate loans (ARM’S) are risky business and tend to “adjust up” over time. They say “whatever goes up must come down” and with interest rate you can pretty much bet that “whatever goes down must go up”. Here are a few tips for people who are planning on buying or refinancing a home:
1. Thinking about refinancing? You typically want to see a 2% improvement from your current interest rate and the proposed “new rate”. When you add up the costs of refinancing as well as the time and hassle associated with the process, you may find a refinancing doesn’t make a lot of economic sense with a spread lower then 2%.
2. Find your break-even point by taking the total costs of refinancing (divided by) the projected monthly savings under the new rate. Doing so will tell you how many months it will take to get your money back!
3. How long you plan to own the property is important. Rule of thumb: If you plan on owning the property for less then 5 years, a refinancing may or may not make sense. Only you and the numbers can tell!
A “Discount point” is 1% of the amount of money you are borrowing and is paid to a lender to secure a lower interest rate on a mortgage. Many people want to pay “points” to get a lower rate. But, are you really getting a lower rate? When you pay discount points you are basically pre-paying the lender interest 15 or 30 years in advance! You are handing over “real dollars” for an intangible “interest rate” that will result in a lower monthly payment…the more important question is will you live in the property for 15 or 30 years? If not, why prepay the interest? Hint: Zero point home loans often make the most sense.
Another cool tip if you have equity in your home and need to purchase a large ticket item like a car… it may make sense to refinance the house and roll the car purchase up in the new mortgage. In this way you spread the cost of your car over the life of the loan, avoid the high interest car loan with whatever tax advantages you may have resulting from your mortgage deductions.
Copyright © 2006
James W. Hart, IV
All Rights reserved
By: Jim Hart
Refinancing Home Loans – An Introduction
April 18th, 2010
Homeowners today don’t give a second thought before refinancing their home loan every time interest rates fall. People while trying to refinance don’t wait to consider if it’s a good or a bad idea. Moreover they always fail to look at the bigger picture. Refinancing home loans is a common practice today and you need to look into each and every detail before you take out another mortgage loan. Before we go any further let us understand what refinancing means:
What is Refinancing?
The original loan secured by a buyer to buy a home is called a purchase-money loan while a refinance loan is taken by a borrower to pay off the amount of the original loan. In case of an individual who continuously refinances his loans every time there is a drop in the interest rates (also called as a Serial Refinancer), the new loan pays off the last loan amount.
Serial Refinancers often go about refinancing their mortgages again and again without realising the fact that every time they refinance, they not only keep on adding more principle toward the end of the loan but also extend the term of the loan.
Kinds of Refinancing
With proper study and research, refinancing home loans can become an easy task. It’s possible to take out a different kind of loan at the time you refinance but is very necessary to understand all that is involved (terms and conditions) in the new loan procedure before you apply for a change. Some common loan types are mentioned below:
Interest Only Mortgage.
Option ARM Mortgage.
Adjustable Rate Mortgage.
FHA Loans.
Reverse Mortgages
Drawbacks of Refinancing
Here are a few:
Costs
Are you paying a certain fees in order to obtain a new loan? Well, fee means money, money which you might not be able to recover through a low interest rate for around a couple of years. Relevant calculations are beyond the scope of this write-up. Go online to refer to specific details.
Longer Amortisation Period
Remember that if you refinance a 20 year long loan with 15 years remaining, with another 20 year loan, then you’ve just turned an original 20 year plan to a 25 year plan. You need to take care of such things!
Benefits of Refinancing
Here are a few:
Lower Monthly Payments
If you are someone who is not into planning too much into the future, refinancing may be a good option as it will insure lower monthly payments, i.e. greater monthly cash inflow.
Cash In Hand
Many people obtain cash so as to invest it for a higher rate than the current interest rate. Hop online to read detailed documents on the procedure of refinancing and make better decisions while getting home loans.
By: Michel Disusa