Complete Guide 2019.
It’s a great time to refinance your mortgage with low rates and a strong economy. To make the decision and process easy, here’s a complete step-by-step refinance guide for 2019.
What is Refinancing?
For those that may not be as familiar with refinancing, let’s start with a simple definition. Refinancing means replacing your current mortgage or loan with a new (preferably better) mortgage or loan. Your refinanced mortgage pays off the loan of your current lender and you subsequently begin making new payments to your new lender. It does take some understanding and work to make this happen, so let’s review what to consider when you’re first deciding to refinance and how to best accomplish it once you decide to take the first step.
Why do you want to refinance?
To begin, it’s important to know why you want to refinance. Your reasons will most likely dictate not only whether you want to refinance but the type of loan you will want. Here are some of the main reasons people refinance:
- Savings. If interest rates have declined, refinancing a new loan can substantially lower monthly payments. Depending on your mortgage, saving a half percent on your interest rate could save you hundreds of dollars each month.
- Cash. If you are in need of cash, then you can borrow against your home’s equity (the value in your home net of all outstanding balances, liens, or loans) by doing a cash-out refinance. In essence, the amount of cash you take out is rolled into the new mortgage and becomes part of your monthly payment. Cash-out refinancing is often used to consolidate credit cards or other high-interest loans. Many people also use the cash for renovations that provide more modern amenities while potentially increasing the overall value of the home. Other common uses for the cash are education or medical expenses.
- Lowers risk. Another strategy for refinancing is to change the terms of your current loans to lower your interest rate risk. If your mortgage is an adjustable-rate mortgage (ARM) that has a low interest rate for a certain length of time and then changes after those terms, you may want to change to a fixed mortgage with a 15-year, 20-year, or 30-year term. You may want to do this to take advantage of low interest rates to lock in payments that will remain constant. If you are uncertain and believe interest rates may rise, changing to a fixed mortgage will reduce that risk.
- Saving interest costs. You may be in a position to pay off your mortgage early. If so, this is a great time to refinance. If you have a 30-year fixed mortgage, you can often get a lower interest with a 20-year or 15-year mortgage and also pay off the principal amount of your loan much quickly.
- Get rid of PMI. Private mortgage insurance (PMI) is an added monthly expense for home buyers who put less than 20% down at the time of purchase. If you’re still paying PMI payments and your home has appreciated in value, your equity may have exceeded 20%, potentially enabling you to remove PMI through a refinance.
Should I refinance now?
Now that you’ve decided you want to refinance, let’s make sure that it will be a good decision. Here are three strong indicators that refinancing may be a good fit for you.
- Low interest rates. If interest rates are lower than your current interest rate, then it may be a good idea to refinance. One rule of thumb is if the interest rate is 50 basis point (half percent) lower, there should be significant savings.
- I’m staying for good. If you are planning on staying in your home for at least a few more years, refinancing for lower payments may work out to give you time to earn enough savings to offset any closing costs from the refinance. One way to determine whether to refinance is by doing a break-even analysis. This involves determining how long it would take for your monthly savings to offset the additional closing costs of refinancing.
- Better credit and cash. If you have earned more money or your credit has improved since you closed your first mortgage, refinancing may give you a better interest rate and thus lower monthly payments. If you also put more cash down when you refinance, this would also lower the amount of interest that you would ultimately end up paying
What you need to know before refinancing.
You’ve determined that it would be financially advantageous to refinance – so now what? Here are the FOUR KNOWS you should have to maximize your savings.
- Know how much you owe. Make sure you know how much you owe and consequently how much you will be able to save net closing costs.
- Know your credit. Get a credit report from the official website that guarantees a free report: AnnualCreditReport.com. Once you understand your credit, you can correct errors on the report, establish a payment history, and pay off debts to improve your credit. A strong credit score will be a factor in determining your interest rate.- can we iframe this in to the site?
- Know your debts. Your debt to income ratio is an important indicator when it comes to refinancing. Most lenders prefer you have lower than a 50% debt to income ratio (expenses of $1,000 month and an income of $2,000 would be 50%). Reducing credit cards or freezing any new debts will help.
- Know your closing costs. Closing costs can include a mortgage application fee, a loan origination fee, an appraisal fee, title insurance, and mortgage insurance. Even “zero closing cost” mortgages involve converting fees into higher interest rates.
You’re ready to refinance! Here is a list of things to get ready that will make the application process run smoothly.
- Personal info
- Identification (typically a driver’s license and social security card)
- Date of birth
- Current housing information
- Marital status
- Employment info
- Employer information
- Income documents or self-employment documents
- Financial info
- W2-tax forms or tax returns for last two years
- Bank account info
- Personal property info
- Credit info
- Assets info
- Investment property info
- Home info
- Recorded deed
- Title insurance
- Homeowner’s insurance
Once you’ve provided the necessary information for the mortgage application, the lender will want an objective third-party appraisal of your home to ensure the money that will be lent will be supported by the facts and value of the home. Here is what’s important:
- What appraisers look at. They look at similar homes and the observable condition of your home, both on the outside and inside. The appraisal can last 15 minutes to several hours.
- What can I do to help? Make sure to clean up the property. Provide a list of all the amenities for your home, especially the upgrades (like a pool if it is unique in the neighborhood). You will also want to make sure to be friendly and that the appraiser is comfortable when performing their job.
Loan Process to Close.
At Starboard Financial, once your information is collected, we will provide you a loan estimate and then begin processing the loan for underwriter approval. We take care of the whole process and make it easy for you every step of the way to your closing date helping you understand all of the necessary closing costs. We also make it possible for you to sign documents before the closing date for your convenience. Because we have one of the fastest turnaround periods of 10 days to close versus industry average of 30 or more days, our clients have less to worry about.
At Starboard Financial, we believe a mortgage or refinance should be easy, and we guarantee it for our clients. Please let us know how we can help you with your mortgage and refinance needs. Check out our latest rates and offerings to see how much you can save by contacting us at …need contact email or number Cody wants to use.