Tips On Refinancing Your Home Mortgage

If you have a mortgage with an interest rate of 5% or more, you may want to consider refinancing it. There has been a slight rise in interest rates as of late, but they continue to be historically low. On average, a 30-year fixed rate mortgage currently stands at 3.87%, or 3.11% for a 15 year mortgage. This means that if you pay more than that, you should consider a change.

Of course, there are other considerations to make as well. Refinancing your mortgage is only a good idea if it will will actually save money. This is particularly true if you have a limited amount of time remaining on your mortgage, and a new one would be paid over a longer period of time.

There are now numerous opportunities for people to complete a refinancing of their mortgage. Some of those are now actively warning homeowners against the lure of “rates as low as” advertisements. Additionally, they are concerned about how easy it has become to get approved for a mortgage.

“Traditionally, it would take one week to several months to be approved for a housing loan, all of that, of course, after you’ve spent weeks shopping for that loan in the first place. But with Rocket Mortgage, shopping for a loan and applying for it is a process that requires little in the way of time and effort.”

According to financial experts, what matters most is to understand the process of refinancing. This will empower people to make the right decisions in terms of their own finances. Additionally, it will help them avoid being drawn in by clever advertisements.

11 Tips on Home Mortgage Refinancing

1. Get your credit in order. It is very important to have a good FICO score.

“Just because you want to buy a home doesn’t mean that a lender is eager to loan you money. Lenders look at your past history in handling your finances, which is where the FICO score comes in. The FICO score boils your credit history down to a three-digit number that instantly tells a lender whether you are creditworthy. This score dictates what terms – if any – you will be offered in a mortgage.”

2. Know the value of your home. This means that you have to have an official appraisal completed as well.

3. Have all your documents in order. You will need proof of employment, assets, and income. The more documents you have available, the better.

4. Make sure you receive at least three quotes. Your bank should be one of those, but do also consider an independent broker. Remember that, unless these quotes are based on your actual credit score, the amounts mentioned on them may not be fully accurate.

5. Consider paying mortgage points. Mortgage points have the capability to bring your rate down.

“Mortgage points, also known as discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called “buying down the rate,” which can lower your monthly mortgage payments.”

6. Make sure you compare the points, fees, and interest rates. This will allow you to get an accurate idea of what each option costs. There are also other fees to think about, like title costs, local taxes, and state taxes.

7. There is no such thing as a “no-cost” refinance deal. If you don’t have to pay any fees, it is because they have been built into the principal balance or the interest rate.

8. Work out whether lengthening or shortening your mortgage is a good idea. A new mortgage means that the payment term starts from scratch again, which means you may be tied down for another 30 years. There are also shorter mortgages, but that means paying more each month. Work out what will work out best for you.

9. Don’t take cash out unless you really know what you are doing. Sometimes, you can use cash out to increase the value of your home, for instance if you install a new kitchen. But if you take it out for your child’s college fund, for instance, you won’t get anything back for that.

10. Be aware of your closing costs. Those include the costs charged by the bank, your taxes, your title costs, legal fees, escrow, and more.

11. Don’t sign anything until you have properly reviewed all documents and the small print.

Understanding The Mortgage Approval Process

The mortgage approval process is quite complicated and hard to understand. Getting approved for a mortgage is down to a lot of different things. It is important that you understand the process, however, as this will increase your chances of getting approved.

The Process of Getting Approved for a Mortgage

When you put in an application for a mortgage, the lender you are working with will send the application itself and all the supporting documentation to an underwriter.

“An underwriter is an entity, typically a company, that is accountable for analyzing and assuming the risk of another entity. Underwriting typically happens behind the scenes, but is an important aspect of mortgage approvals. The mortgage underwriting process has 5 key steps: verification, appraisal, title search and insurance, flood certification, and surveying.”

The underwriter is responsible for looking at the scenario you are proposing and will determine whether it meets their guidelines. They will ultimately decide whether or not you meet the necessary qualifications for a loan. There are a number of specific criteria that they will look at, the most important one being whether you will be able to pay the loan back.

The Debt-to-Income Ratio

To determine your ability to repay a loan, the lender will calculate your debt-to-income (DTI) ratio

“To calculate your debt-to-income ratio, add up your total recurring monthly debt (such as mortgage, student loans, auto loans, child support and credit card payments) and divide by your gross monthly income (the amount you earn each month before taxes and other deductions are taken out).”

Most of the time, the DTI should be no more than 36%.

Credit Score and Other Factors

The second thing they look at is how likely it is that you will repay your loan. This is determined by looking at your current credit score and your payment history. This will determine how risky you are as a borrower.

Next, they look at the value of the home that you want to buy. They will use information provided by a professional lender to determine how much the house is actually worth. All lenders have a maximum loan-to-value (LTV), which is usually between 80% and 95%. The higher the value of your home and the lower the amount you borrow, the lower the LTV percentage is.

Finally, the underwriter will look at whether you can make a down payment. If this is lower than 20% of the value of your home, it is likely that you will also have to pay for private mortgage insurance (PMI), which will increase the cost of your monthly payments on the mortgage itself.

“PMI is arranged by the lender and provided by private insurance companies. PMI is usually required when you have a conventional loan and make a down payment of less than 20 percent of the home’s purchase price. If you’re refinancing with a conventional loan and your equity is less than 20 percent of the value of your home, PMI is also usually required.”

Once the underwriter has collected all this information, they will review all the documents that you have provided. They will also look at your ability to pay for the closing costs of the mortgage itself. You may also have to demonstrate that you have at least two monthly mortgage payments, sometimes more, in reserve. This will prove that you can pay for your mortgage for a certain period of time in case of unforeseen events or other emergencies.

Clearly, getting approved for a mortgage is down to a lot of different things. Besides your debt, income, down payment, credit history, home value, and personal savings, you also have to meet the different guidelines put in place by the lender.