Tips to Make Your REFINANCE Easy!

The days of an easy mortgage refinance are OVER. If you have an existing mortgage and you wish to refinance, you are going to be facing much more stringent requirements around financial documentation, credit scores, and especially appraisals. Your friends at edebtsolutions.org have put together a few items to consider if you are looking to take advantage of today's low rate and proceed with a refinance.

Be prepared to give full and complete documentation

By full documentation we mean proof of employment or income and verifiable bank balances for what is reported on your mortgage application. No more "liar loans"! Most lenders will be looking for 60 days of pay stubs and no less than 2 years worth of tax returns. If you are making a down payment, you will have to verify where the funds are coming from and if it is from savings, it will have to be seasoned for at least 90-120 days. Seasoned means in your bank account for the required time period.

Conform to current lending amounts and avoid jumbo loans

Because interest rates have risen recently, those on the upper end of the borrowing limit have to pay a higher rate. This is because the jumbo amount, currently $417,000, is the amount that is guaranteed by Freddie Mac & Fannie Mae. And right now, if your loan conforms to those guidelines, it will be almost 2% less which means a lower payment and related interest costs. Consider this; if you borrow $418,000 as a lump sum instead of securing two loans, it can increase your payment by over $500 per month as compared to a lower $417,000 loan. The savings are all in how you split it up, because the extra $1000 on the one loan will cost you way more than the same amount on two loans. Naturally, you have to keep your LTV at 80%.

Shop, Shop, and Shop the Mortgage Brokers

Because things change daily in the mortgage market, the options you get offered can change dramatically from one broker to the next. This is where being a customer of edebtsolutions.org pays off, we have a relationship with some of the lowest cost providers out there. Our partners help thousands of customer month and as a result, the have the power to make you the best possible deal based on your scenario and not some cookie cutter approach.

Covering Closing Costs:

Many homeowners erroneously believe they can't refinance because they don't have the cash for closing cost or that they won't benefit from a refinance.

Consider these strategies

  • No cash for closing costs? Just ROLL them into the new mortgage. The worst case scenario is that you will have a little larger mortgage amount but you will reach your goal of lowering your monthly mortgage payment. Then you can use the savings to make a principal only payment on the loan and pay down your outstanding balance. Don't forget to consider how long it will take to recover the refinance costs based on your lowered payment amount.
  • Read your mortgage note to determine if you have a prepayment penalty. If you do, it usually applies to the first 3 years of the note and it can be up to 6 months of interest on the original amount of the note. On a $250,000 note that could be nearly $8,000.
  • If you live in a state that charges a mortgage tax, like New York, you can save the tax of one-half to three-fourths of a percentage point on new or refinanced mortgages by assigning the mortage to the new lender and have them modify the rate and terms to match the what they are offering on the new mortgage.

The 15 Year Mortgage Money Saving Strategy

The best way to save the most amount of money over the life of the loan is to secure a 15 year mortgage. Interest rates for a 15 year note are approximately one to one and a half percentage points lower than a 30 year note. The payments will be slightly higher over the life of the loan, but the amount of interest you save will be significant.

If you like the 15 year concept but need lower payment amount flexibility provided by a 30 year mortgage, we have an option to consider. Simply make the larger 15-yr payment amount and indicate that the addition amount is to be applied towards principal only and as a result the 30-yr note can be paid off in about 16 years. This option gives the flexibility in the event that cash gets tight, you can fall back to the 30 year payment.

Homeowners that like the concept but need the flexibility of the lower payments on the 30-year mortgage can accomplish almost the same results by taking out a 30-year mortgage but making the larger payment required for a 15-year mortgage. If they do this, they can pay off a 30-year mortgage in about 16 years. If cash flow gets tight, they can fall back to the lower payment required by their 30 year mortgage, and increase payments later when you can afford to do so.

Because of the tightened credit requirement it is imperative that all borrowers make sure to be prepared for the refinancing process by asking for a 90-day rate lock, getting your documents, application and tax records together and submitted as soon as possible. Also, be flexible with the appraiser assigned by the lender and look for a title company that will give you discount on both the closing and the title insurance. The ones most apt to work with you on costs are ones that you have used in the past.

Mortgage and Credit Debt Services
Q What should I do if I am deep in debt?
A Whether it is caused by illness, the loss of your job, or simply just over-spending, a financial crisis of this sort can seem overwhelming, but it often can be overcome. Don't let your financial situation go from bad to worse.

Realistic budgeting, credit counseling from a good organization, debt consolidation, or bankruptcy, are some of your options. Knowing which one will work best for you depends on how high your debt is, if you can discipline yourself, and your prospects for the future.