Home Owning - Refinance Now
Refinancing now might just catch you the lowest interest rate of you life.
It's not like a couple of years ago when all you needed was a pay stub and an eager broker, today's process isn't as quick and painless.
The demand for mortgage loans are up and the number of people processing mortgages is down.
Standards for obtaining a mortgage loan today are stricter.
Here are some things you should know before you refinance.
The 30-year fixed rate should stay around 5% for the rest of the year.
It might increase to 5.
25% if the economy improves.
HSH's survey of lenders pinpointed the national average 30-year fixed rate at 4.
97% in early May of 2009.
The average 15-year rate was 4.
68%, and the average 5/1 adjustable-rate mortgage (a five-year ARM that changes every year after the fixed time period) was 4.
91%.
The lowest interest rate will often be available if your loan is backed by Fannie Mae or Freddie Mac and if you're taking out a loan that falls within certain limits, such as a conforming loan, you should have at least 20% or more in your home's equity and a credit score of at least 720.
Thee are some additional factors that can help in refinancing that can help you obtain the lowest rate, such as living in the home that you are refinancing, not taking out cash when you're refinancing, and not trying to obtain a home-equity loan or a home-equity line of credit.
You can also often reduce your rate by paying discount points at closing.
Each of these discount points are equivalent to 1% of your loan amount and each point will usually lower your interest rate by a 0.
25 percentage point.
For the best estimate of the rate for which you will qualify, you should supply the lender with your FICO score and an estimate of you home's market value.
You can obtain your FICO score online for around $8 and you can get an estimate of how much the market value of your home is from a real-estate agent.
Keep in mind that when you apply to refinance your home, you will have to supply pay stubs from a recent month, bank statements for at least two months, and W-2 statements for at least two years.
If you are self-employed, you will need to bring tax returns for at least the past two years you are self employed, you will need to bring tax returns for at least the past two years to prove you have self-sustaining income.
To speed up the process, you can fill out the application and pay for an appraisal of the property ahead of time.
Before applying you should call several lenders, credit unions, national and regional banks and banks in your area.
You should also call a mortgage broker.
A mortgage broker that represents many lenders may be helpful if your needs or qualifications aren't clear-cut.
Plus, if your application is turned down, a good broker will either appeal or take the application to another lender that may approve the loan.
When refinancing, it's a good idea to lock in the rate for a number of reasons.
If the mortgage gets more expensive than you can afford, you don't want the chance of rising rates to ruin the deal.
You also don't want to take the risk that the rates will change before closing.
With how long the process is taking these days, this could become a very likely scenario.
Locking in your rate will cost you though.
The lender will usually add a quarter of a percentage point to interest rate for every 30 days you lock in your rate up to a period of 90 days.
It is also possible that interest rates may decline.
To be able to take advantage of that, you will need to ask about a float down option.
If rates happened to drop a minimum of 0.
25%, you would be able to get the lower rate before closing the loan.
Lenders most often charge a fee of $200-$300 for this option, but it can potentially save you thousands over the course of your loan.
When it comes to the equity that's required before you're able to refinance, Fannie Mae and Freddie Mac require only 5% for a single family home that's you're living in.
However, you will be required to obtain private mortgage insurance if you have less than 20% equity.
Private mortgage insurance protects the lender if you default on the loan.
With home prices declining this becomes a problem, because mortgage insurers won't cover conventional loans if there is less than 10% and 15% for jumbo loans.
Private mortgage insurers can be very costly, and the added cost might just disqualify you from refinancing.
With the FHA, you can refinance your home with as little as 2.
25% of the equity in your home.
The FHA provides its own mortgage insurance which will cost you an upfront premium and a monthly premium.
Some FHA lenders require a minimum of around 580 to 620 credit score, but the FHA itself does not impose a credit score minimum to qualify for refinancing.
Fannie Mae and Freddie Mac impose a limit for mortgage loan payment to not exceed 36%$ of your monthly pretax income, the FHA sets there limit at 31% of your monthly pretax income.
It's not like a couple of years ago when all you needed was a pay stub and an eager broker, today's process isn't as quick and painless.
The demand for mortgage loans are up and the number of people processing mortgages is down.
Standards for obtaining a mortgage loan today are stricter.
Here are some things you should know before you refinance.
The 30-year fixed rate should stay around 5% for the rest of the year.
It might increase to 5.
25% if the economy improves.
HSH's survey of lenders pinpointed the national average 30-year fixed rate at 4.
97% in early May of 2009.
The average 15-year rate was 4.
68%, and the average 5/1 adjustable-rate mortgage (a five-year ARM that changes every year after the fixed time period) was 4.
91%.
The lowest interest rate will often be available if your loan is backed by Fannie Mae or Freddie Mac and if you're taking out a loan that falls within certain limits, such as a conforming loan, you should have at least 20% or more in your home's equity and a credit score of at least 720.
Thee are some additional factors that can help in refinancing that can help you obtain the lowest rate, such as living in the home that you are refinancing, not taking out cash when you're refinancing, and not trying to obtain a home-equity loan or a home-equity line of credit.
You can also often reduce your rate by paying discount points at closing.
Each of these discount points are equivalent to 1% of your loan amount and each point will usually lower your interest rate by a 0.
25 percentage point.
For the best estimate of the rate for which you will qualify, you should supply the lender with your FICO score and an estimate of you home's market value.
You can obtain your FICO score online for around $8 and you can get an estimate of how much the market value of your home is from a real-estate agent.
Keep in mind that when you apply to refinance your home, you will have to supply pay stubs from a recent month, bank statements for at least two months, and W-2 statements for at least two years.
If you are self-employed, you will need to bring tax returns for at least the past two years you are self employed, you will need to bring tax returns for at least the past two years to prove you have self-sustaining income.
To speed up the process, you can fill out the application and pay for an appraisal of the property ahead of time.
Before applying you should call several lenders, credit unions, national and regional banks and banks in your area.
You should also call a mortgage broker.
A mortgage broker that represents many lenders may be helpful if your needs or qualifications aren't clear-cut.
Plus, if your application is turned down, a good broker will either appeal or take the application to another lender that may approve the loan.
When refinancing, it's a good idea to lock in the rate for a number of reasons.
If the mortgage gets more expensive than you can afford, you don't want the chance of rising rates to ruin the deal.
You also don't want to take the risk that the rates will change before closing.
With how long the process is taking these days, this could become a very likely scenario.
Locking in your rate will cost you though.
The lender will usually add a quarter of a percentage point to interest rate for every 30 days you lock in your rate up to a period of 90 days.
It is also possible that interest rates may decline.
To be able to take advantage of that, you will need to ask about a float down option.
If rates happened to drop a minimum of 0.
25%, you would be able to get the lower rate before closing the loan.
Lenders most often charge a fee of $200-$300 for this option, but it can potentially save you thousands over the course of your loan.
When it comes to the equity that's required before you're able to refinance, Fannie Mae and Freddie Mac require only 5% for a single family home that's you're living in.
However, you will be required to obtain private mortgage insurance if you have less than 20% equity.
Private mortgage insurance protects the lender if you default on the loan.
With home prices declining this becomes a problem, because mortgage insurers won't cover conventional loans if there is less than 10% and 15% for jumbo loans.
Private mortgage insurers can be very costly, and the added cost might just disqualify you from refinancing.
With the FHA, you can refinance your home with as little as 2.
25% of the equity in your home.
The FHA provides its own mortgage insurance which will cost you an upfront premium and a monthly premium.
Some FHA lenders require a minimum of around 580 to 620 credit score, but the FHA itself does not impose a credit score minimum to qualify for refinancing.
Fannie Mae and Freddie Mac impose a limit for mortgage loan payment to not exceed 36%$ of your monthly pretax income, the FHA sets there limit at 31% of your monthly pretax income.
Source...