subject: Refinancing You Home Loan, 7 Things You Must Know Before Doing One. [print this page] 7 things you need to know to get a refinance.
Refinancing your home loan is not an easy task, especially if you are not into refinancing on a regular basis. In order to refinance your mortgage effectively you'll need to know certain things to make the process as simple and smooth as possible. From my years of experience in the banking industry, here are the seven most important things you need to know to get a refinance:
1) Equity: equity in the home often a problem in these times. The fact is that with the current mortgage crisis declining home values have been seen throughout the country. To be able to qualify for refinancing, borrowers must have at least 8.25% of equity in their homes. The first 6% is to cover closing costs and the other 2.25% because the maximum loan to value a loan can be done is at 97.75%.
2) Rejection Rate: although more and more people want to refinance, the truth is that not all will be approved. In fact more than 75% of the people that apply for a loan get rejected. With proper documentation and minimum requirements you could be one of those approved.
3) FICO Score: While 680 is considered good, more and more banks are leaning towards a 740 credit score to make lending decision that will provide the borrowers with the lowest interest rate in the market. Anything under 740 will most likely result in higher interest rates, and as result higher monthly payments.
4) Percentage Point: often the interest rates may look attractive, but it's recommend that you carefully examine your finances or your financial situation so that, from this analysis you can determine which is the best time to refinance. On the other hand, if your mortgage rate is higher than current interest, this is a good sign that a refinance may be beneficial to you. It's important to keep in mind that when taking a jumbo loan (one that is above conforming limits), interest rates could be higher than the current lowest.
5) Fee Paying Options: The fees associated with closing a refinance can change from one bank or borrower to another. As an example let's say you are looking to refinance a $300,000 mortgage, closing cost could be around the $7,000 area in closing costs. Given this example, borrowers have three main options for the payment of such fees. Those who have enough money can pay the fees up front. For those who might not have all the money to cover all the closing costs a high interest rate will result in less closing cost and therefore might be more affordable. The last choice but not the worst would be to include closing cost into the loan itself; this normally works great for borrowers who cannot afford the closing cost at all. What we recommend is to talk with your mortgage lender about the different possibilities and how you may benefit from each depending your situation and goals.
6) Shop Shop Shop: every lender is different. Some lender might offer certain fees, rates and accommodations while others may not. On the other hand if you are rejected by one bank you can also go to another bank and get approved, simply because one bank chooses not to do a loan, it doesn't mean that all banks will choose to deny your loan. The main point is to shop around and get as many opinions as possible before making a decision.
7) Be Patient: There is a phrase that says: "Patience is a virtue", it's time to put this phrase into practice. Most banks have waves and waves of applicants looking to refinance. Some loans may take more time than other, and this doesn't mean that your loan will not get approved; it just means that it might take longer than normal to get it closed.
So there you have it, 7 things you need to know before you refinance. Keep these tips in mind the next time you consider refinancing your home.
