The SCOOP! Blog by ChangeMyRate.com®

Be prepared for mortgage underwriting to speed up the process.

A home may be the largest purchase you'll ever make, so it shouldn't come as a surprise that a financial institution will want to verify that you can afford it – now and in the future – through the underwriting process.

What Is Mortgage Underwriting?

Mortgage underwriting assesses the risk of lending money to a potential homebuyer. During this process, you'll submit a loan application, along with documentation to support your earnings, assets and liabilities. You'll also consent to a credit check. The lender will perform an appraisal of the property, which determines whether the offer you've submitted on a home is an appropriate value.

Two important reasons for the mortgage underwriting process are:

  • Risk protection. Financial institutions go through the underwriting process to protect against excess risk and make a wise lending decision, says Mike Oakes, executive vice president of retail operations for U.S. Bank.
  • Responsible banking. The process helps prevent consumers from obtaining loans they don't have the ability to repay, which is in part controlled by federal regulations, Oakes says. "Part of our job is to say we agree they have the ability to repay and that it's a good scenario for both parties," he says.

But mortgage underwriting can take days or drag on for weeks, especially if you're not prepared to submit full documentation, or if your loan needs to go through manual underwriting. If you have your paperwork organized and are ready to work with your lender, the experience can be efficient.

How You Can Prepare for Mortgage Underwriting

Schedule an initial consultation with a mortgage lending officer to determine if you are ready to buy a home, says Ron Haynie, senior vice president of mortgage finance policy for the Independent Community Bankers of America. "There are also HUD-approved housing counselors who can help with special government programs targeted to first-time borrowers or low- to moderate-income borrowers," he says.

A great place to start your preparation for the underwriting process is a toolkit offered by the Consumer Financial Protection Bureau, which will guide you step by step through buying a home, from just considering your options to closing on a home.

The underwriting process will begin once you fill out an application with a lender. You'll be asked for information, including your address, birth date, previous residences, Social Security number and income – and all of it will have to be backed up by documentation.

Get your paperwork in order before you start the process, as you would for a CPA who is doing your tax returns.

"Consumers should have a good understanding of their financial situation and should be prepared to provide proof of income, employment and assets," which could include bank accounts, investments and real estate assets, Haynie says. "They should also be prepared to disclose their debts, such as credit cards, auto and student loans."

What Mortgage Underwriters Examine

Major factors mortgage underwriters consider are:

  • Income
  • Assets
  • Credit history and score
  • Property value

Income and assets. If you're employed by a company, underwriters will ask for pay stubs.

Income verification can get complicated, though, if you have inconsistencies due to a bonus or another factor. The underwriter might then reach out to your employer to find out more about bonuses, overtime wages and longer-term equity awards, and possibly to seek additional documentation, Oakes says.

If you're self-employed, more paperwork is likely to be involved, especially around tax returns. This could include personal tax returns and all relevant schedules because the financial institution wants to know more about the long-term viability of your business, Oakes says.

The lender will want to know where your down payment is coming from – mortgages typically require a down payment, except for special programs that offer low or no down payments – and will need documentation to verify your funding source. The lender also wants to ensure that you're not borrowing money from somewhere else to make the down payment possible, so you'll need to show how the money got to your account, whether through wages, gifts or other sources.

Credit history and score. The credit score of the home purchaser is a vital component of the underwriting process. Your score can influence your interest rate and which mortgage programs are available to you.

You can obtain your credit score for free through AnnualCreditReport.com, the only site federally authorized to provide free credit reports, and through some credit card companies. Review the report at least six months before you plan to apply for a mortgage so you can make improvements and correct any errors.

Property value. One of the pivotal parts of the underwriting process is confirming the value of your property. Even though you've agreed to a price with the seller, an appraiser who evaluates the home's condition and the value of similar nearby homes has to back up the price.

Your property's appraisal will then be matched with your mortgage amount. The loan-to-value ratio, which describes the size of your loan compared with the value of the property, also helps evaluate risk. An LTV ratio of 80% – such as a $160,000 mortgage on a $200,000 property – is a dividing line; if you borrow more than 80%, you'll typically have to pay mortgage insurance to the lender, says Bill Banfield, executive vice president of capital markets at Quicken Loans.

Other property-related factors influencing underwriting include property taxes, home insurance and homeowners association dues, if applicable, Banfield says. Also, the lender will obtain a review of the title of the home to ensure there are no issues – such as liens – associated with it, Oakes says.

Appraisals are subject to appraiser availability and access to the home, however, so this is a potential point for underwriting to stall.

How to Speed Up the Underwriting Process

A prospective homeowner can make the mortgage underwriting process go as quickly as possible by:

  • Ensuring all documents are in order, organized and submitted right away.
  • Knowing his or her credit score and whether it will help secure the desired loan and interest rate.
  • Answering any lender inquiries completely and quickly.

"You can really streamline your own process," Banfield says.

Using digital exchanges is another way to speed up the process dramatically. In Banfield's experience, digital exchanges, such as when the consumer allows the lender to connect directly to another bank to confirm assets, simplify document sharing.

Another way to make the process less taxing is to obtain a verified preapproval letter before you make an offer on a home. Prequalification can give you an idea of how much you might be able to borrow, but preapproval is more concrete. Preapproval means the lender will examine your income, assets and credit to verify your risk factors. It allows you to be a step ahead, Banfield says. If you're preapproved, all you'll need is an approved home offer and an appraisal, he says. You might even be able to lock in an interest rate.

What to Do if You're Rejected in Mortgage Underwriting

If you can't get a lender to approve your loan application, you have options, depending on the reasons for your rejection.

If you're not approved because of a low credit score, take a step back for a few months and work on improving your credit rating. Focus on getting your accounts current and paying down balances.

Or you may need to adjust your offer if the appraiser doesn't agree that the home is worth what you've offered to pay. Go back to the sellers and see if they'll reduce the price to the appraised value so you can get your mortgage approved.

If your income, assets or both aren't enough to afford the home you want, you could choose a more affordable property, save more money for your down payment, or look for assistance through a co-signed loan.

Typically, applications are either approved or denied, but sometimes, mortgages are suspended in underwriting. If that's the case, you may need to provide more documentation to verify employment, income or assets.

Source: To view the original article click here

Posted by Jackie A. Graves, President on April 25th, 2019 9:20 AM

FREEHomePurchaseAnalysis     FREEHomeRefinanceAnalysis    

This question might seem a bit odd at first, but there can be different stages for a loan application. Typically, the difference is when someone has submitted a loan application to a lender but has yet to pick out a property. When submitting an application in order to receive a preapproval letter, there are certain things the lender will need before a preapproval can be delivered. One, you’ll need to provide written authorization for the lender to pull your credit report and retrieve credit scores. Loan programs today have minimum credit score requirements. Before any approval letter is issued, credit will need to be reviewed.

Lenders must also determine affordability. When issuing a preapproval letter, it’s typically after the borrower and the loan officer have had a conversation about monthly payments, down payments and closing costs. This prequalification is the result of a general conversation between the two regarding current credit status, employment, assets and other items. When these items are reviewed and confirmed, it’s at that point where a preapproval letter can be issued.

Borrowers can also request a Loan Estimate, formerly known as the Good Faith Estimate, which will itemize various potential costs of obtaining a home loan. Costs both from the lender and third parties. But the loan estimate isn’t considered binding until the mortgage application is considered a valid loan application according to regulations. There are six things that do turn a prequalification or preapproval into an official loan application which will then trigger a host of required disclosures the borrowers need to review, sign and return to the lender. These six items are:

• Name
• Income
• Social Security Number
• Property Address
• Estimated Value of Selected Property
• Mortgage Loan Amount South

When this information is provided to the lender, either over the phone, in person or in writing, the application becomes an official one and the lender then is required to supply an official Loan Estimate to the applicants within three business days. It is this loan estimate that will be used to compare the initial estimate with the final numbers at the settlement table. For example, lender charges cannot vary from the initial estimate to the final settlement statement. Third party charges can have an aggregate variance of 10 percent from the initial estimate. For required services where the borrowers select the provider, which is rare by the way, there is no regulation limiting changes to the final number. If any one of the required six items is missing, the loan application is not an official one and loan disclosures will not be delivered. Most often this is a property address.

It’s important to note here that just because one item is missing doesn’t mean the lender doesn’t have to provide you with an estimate of closing costs. Your loan officer certainly will upon request. But when a completed loan application with the minimum six pieces of information are provided, things get official and various loan disclosures will be issued and the clock begins to tick.

Source: To view the original article click here

Posted by Jackie A. Graves, President on April 24th, 2019 9:09 AM

FREEHomeRefinanceAnalysis     

As we mapped out in our homebuying timeline, understanding what you can afford is key, and this includes your down payment. If you're like most, your down payment is top of mind as you embark on your homebuying journey. Whatever you do, don't hang a white towel from your window just yet.

It might be easier than you think once you understand your options and the two key principles:

1.    You don't need a 20% down payment. This is one of the biggest misconceptions in the market, with many homebuyers putting down significantly less. In fact, the average down payment for first-time homebuyers is 5%, according to the National Association of Realtors®. Plus, options like our Home Possible® mortgage allows qualified borrowers to put down as little as 3%.

Putting down less than 20% means you'll be required to pay private mortgage insurance (PMI). However, if putting 20% down is not an option or will deplete all your savings and leave you with no financial cushion, it's probably not in your best interest. Plus, once you've built equity of 20% in your home, you can cancel your PMI.

2.    Assistance is available. Pulling together enough money for a down payment may be a challenge, but the funds don't necessarily need to come from your savings account, nor do you have to do it alone.

·         With many of today's mortgage options, your down payment can come from a variety of sources other than personal savings, including gifts from your family or employer. For many homebuyers, this is a huge bonus.

·         There are also hundreds of programs across the nation that provide down payment assistance, with eligibility requirements varying based on your location, income and other criteria. Check out Down Payment Resources' handy online tool, or explore HUD's listing of available programs by state. The down payment program benefit is typically around $10,000, perhaps enough to get your funds.

Don't assume homeownership is out of reach because of the down payment. Get savvy and rev up your engine! There are many programs and products that can help you realize your dream of homeownership. Learn more about down paymentsdown payment assistance options and be sure to follow our spring homebuying blog series.

Next Stop...Finances.Source: To view the original article click here

Posted by Jackie A. Graves, President on April 23rd, 2019 8:32 AM

FREEHomePurchaseAnalysis    

Now that you’re settling in to your new home, there are some important things you need to consider. The American Bankers Association recommends the following tips.

1. Create a budget.

The key to a good budget is including as much information as you can, so that you can adequately prepare and plan. It's important to keep accurate records of your spending so you can spot places to save money and know how much you can reasonably spend. ABA’s budgeting worksheet (also available in Spanish) will help you document and categorize your expenses.

2. Protect your property.

Whether you’re a homeowner or a renter, you need insurance to protect your belongings. Check with your local insurance agent, you might be able to get a discount if you have things like dead bolt locks, an alarm system, or smoke detectors, or if you already have a policy with that company, like car insurance. Also, find out if you’re in a flood zone. If you’re concerned about flooding, you will need to purchase a separate flood insurance policy. Learn more at floodsmart.gov.

3. Protect your safety.

Make sure all of the locks on your doors and windows work properly. If it makes you more comfortable, look into having an alarm system installed. Also, check your fire and carbon monoxide alarms once a month to be sure they’re working. If you have a dryer, clean the lint from the entire system, from the dryer to the exterior vent cap. Lint is extremely flammable and poses a fire risk.

4. Take your tax deductions.

Be sure you know all the tax deductions associated with your move and new home. If you use a portion of your home for business purposes or moved for a new job, you may be able to take deductions. Homeowners can deduct mortgage interest, property taxes and loans for home improvements.

5. Make your house – or apartment – your home.

Decorating your space will make it more comfortable and personal. If you’re a tenant, check with your landlord before making major changes like painting the walls or changing the appliances. Renters should take photos of the rental space before moving in to document the existing condition and insist on a final walk-through with the landlord. If you own your home, be smart about where you invest your money on improvements to ensure you’re building equity in your home. For example, updates in the kitchen and bathroom usually provide the best return on investment.

6. Save up for a rainy day.

Although life may be sunny now, it’s a good idea to create a rainy day fund. The fund should have at least three to six months of living expenses in case you or someone in your household loses a job or becomes ill and unable to work.??

 

Source: To view the original article click here

Posted by Jackie A. Graves, President on April 22nd, 2019 6:33 AM

FREEReverseMortgageAnalysis    

Terminology, Tips and More

The vast majority of older American?s want to remain in their homes as they grow older, also known as aging in place. There are a number of costs to consider when aging in place including home modifications, transportation and in-home medical care. One way to pay for these costs and stay in your home is a reverse mortgage. If you’re considering a reverse mortgage, the American Bankers Association encourages you to understand what it is and weigh the pros and cons.

Terminology: What You Need to Know

Reverse Mortgage – A reverse mortgage is a type of loan that allows you to borrow against the equity in your home. You must be at least 62 years-old to qualify.

Home Equity – This is the value of your home minus debt against it.

Homeowner – With a reverse mortgage, you are still a homeowner and still responsible for paying property taxes, insurance and upkeep.

Repayment – When the loan is over, you or your heirs must repay cash received from the loan plus interest. The reverse mortgage loan becomes due when the borrower dies, sells the home or moves out of the home. The lender may also require repayment if you fail to pay your property taxes, fail to keep your home insured or fail maintain your home. Be sure to read the terms of the agreement closely before signing.

Fees – Just like with any other mortgage product, there will be fees to close the loan. Lenders may allow you to pay the fees using your reverse mortgage. They are added on to the balance of your loan and must be repaid with interest when the loan is due.

Total Annual Loan Cost – Because different reverse mortgage products can vary, it can be difficult to compare prices and choose the best one for you. Ask your lender for the Total Annual Loan Cost, a single annual average rate, to help compare various reverse mortgage products.

Co-Borrower – If you live with a spouse or partner, it is highly recommended that you apply for the reverse mortgage together as co-borrowers. Anyone living in the home who is not a co-borrower will be required to pay the loan or move out when you move or die.

Payout Options – The way you take cash from your reverse mortgage can vary. You can opt for a line of credit to take cash only when you need it, a monthly payout, or a single lump sum.

Tips: Key Considerations and Red Flags

  • ?Shop around. Be sure to check with multiple lenders. You can use sites like www.reversemortage.org, sponsored by the National Reverse Mortgage Lenders Association, to find lenders in your area.

  • Understand your options. Be sure to evaluate all the options you have including applying for a home equity line of credit or home equity loan. Also consider selling your home.

  • Be cautious. If someone is selling you something and suggests you use a reverse mortgage to pay for it, consult a trusted advisor before signing anything.

  • Nothing is free. If anyone suggests that a reverse mortgage is free money, don’t believe it. Fees are built into the loan, which must be paid back with interest when it becomes due.

  • Know your rights. After closing the loan on a reverse mortgage you have three business days to reconsider your decision. If you choose to rescind the loan, you must do so in writing.

  • Consider borrowing jointly. If the reverse mortgage is in one person’s name and that person dies or leaves the home, the loan will become due. If there are two people living in the home – make sure you’re both on the loan or able to repay the loan – otherwise, you may end up losing the property.

  • Consider your age. Be cautious if a lender is suggesting you do this at an early age. Your debt will begin to grow and equity will decrease as soon as you take out the reverse mortgage. The longer you have the loan, the more it will cost.

  • Only take what you need. Carefully consider your payout options. Keep in mind that if you take the full amount of the loan in one lump sum, you will be charged full interest on the largest possible loan amount.

?Tools: Additional Resources

National Reverse Mortgage Lenders Associationwww.reversemortage.org

AARPhttp://www.aarp.org/money/credit-loans-debt/reverse_mortgages/

Consumer Financial Protection Bureauhttp://www.consumerfinance.gov/askcfpb/224/what-is-a-reverse-mortgage.html

Federal Trade Commissionhttp://www.consumer.ftc.gov/articles/0192-reverse-mortgages

U.S. Department of Housing and Urban Developmenthttp://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmhome?

 

Source: To view the original article click here

Posted by Jackie A. Graves, President on April 21st, 2019 7:37 AM

FREEHomePurchaseAnalysis 

   

Whether you’re preparing to rent or buy, the American Bankers Association encourages you to be familiar with the following housing terms: 

Before Buying:

APR: 

Short for annual percentage rate, APR is how much your loan will cost over the course of a year. This figure is almost always higher than the interest rate, because it takes into account the interest charged as well as fees or additional costs associated with the loan. Since all lenders use the same formula, it can be a more effective way of comparing mortgages rather than just the interest rate.



Closing costs/settlement fees: 

The costs, in addition to the price of the property, that buyers and sellers are charged to complete a real estate transaction. Costs include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed-recording fees and credit report charges.



Escrow: 

An account held by a neutral third party (called an escrow agent) who works for both the lender and the borrower. Escrow accounts are usually required by lenders to cover property taxes and mortgage insurance. After an initial deposit, borrowers pay into the escrow monthly – usually as part of the mortgage payment.



Good Faith Estimate (GFE): 

An accurate estimate of fees associated with a loan provided to the customer by a mortgage lender or broker. A GFE is required by law under the Real Estate Settlement Procedures Act (RESPA). The estimate must be provided within 3 business days of applying for a loan.



Mortgage broker: 

An individual or company who connects borrowers and lenders for the purpose of facilitating a mortgage loan. Unlike a mortgage lender, a broker does not make the loan or service the mortgage. A mortgage broker may represent various lenders or may offer loans from one single source.



Points: 

Borrowers can pay a lender points to reduce the interest rate on the loan, resulting in a lower monthly payment. The cost of one point is equal to 1 percent of the loan amount. Depending on the borrower, each point lowers your interest rate by one-eighth to one one-quarter of a percent.

 

Before Renting:



Lease: 

A legal document detailing the terms under which the lessee (the renter) agrees to rent property from the lessor (the property owner). A lease guarantees use of an asset and guarantees regular payments from the lessee for a specified number of months or years.



Notice to vacate: 

Notification from the landlord to the tenant ordering the tenant of vacate the property. In most cases, the notification is given because the tenant either broke one of the terms of the lease or is not following through with payment of rent. The tenant is typically given 30 days to vacate the premises.  Similarly, a notice to intend to vacate may be required under the lease for the tenant to notify the landlord before vacating the property.



Rental application: 

Filled out by a prospective tenant, which typically authorizes the landlord to conduct a credit check to determine the suitably of the individual. Often, there can be a non-refundable fee associated with the rental application. 



Security deposit: 

Funds, in addition to rent, that a landlord requires a tenant to pay to be kept separately in a fund for use should the tenant cause damage to the premises or otherwise violate terms of the lease.

?

Source: To view the original article click here

Posted by Jackie A. Graves, President on April 20th, 2019 1:44 PM

FREEHomePurchaseAnalysis    

An important step to finding a home, whether you’re renting or buying, is ensuring that you have a good credit history. The American Bankers Association suggests the following tips to improve your credit score.

 

Request a copy of your credit score report – and make sure it is correct. 

 

Your credit report illustrates your credit performance, and it needs to be accurate so that you can apply for other loans – such as a mortgage. Everyone is entitled to receive a free copy of his or her credit report annually from each of the three credit reporting agencies, but you must go through the Federal Trade Commission’s website at www.annualcreditreport.com?, or call 1-877-322-8228. Note that you may have to pay for the numerical credit score itself.?

 

Set up automatic bill pay. 

 

Payment history makes up 32 percent of your VantageScore credit score and 35 percent of your FICO credit score. The longer you pay your bills on time, the better your score.  Avoid missed payments by setting as many of your bills to automatic pay as possible.

Build credit through renting. 

 

VantageScore’s scoring model, created by the three major credit bureaus, will now weigh rent and utility payment records. This will allow it to score as many as 35 million people who previously couldn’t get a credit score.

Keep balances low on credit cards and ‘revolving credit.’ 

 

Racking up big balances can hurt your scores, regardless of whether you pay your bills in full each month. You often can increase your scores by limiting your charges to 30 percent or less of a card's limit.

Apply for and open new credit accounts only as needed. 

Keep this in mind the next time a retailer offers you 10 percent off if you open an account. However, if you need a new line of credit, don’t jump at the first appealing offer; compare rates and fees offered through mail solicitation, on the Internet or at your local bank. 

 

Don’t close old, paid off accounts. 

According to FICO, closing accounts can never help your score and can in fact damage it. 

 

Talk to credit counselors if you’re in trouble. 

Using legitimate, non-profit credit counseling can help you manage your debt and won’t hurt your credit score. For more information on debt management, contact the National Foundation for Consumer Credit (www.nfcc.org).

 

Source: To view the original article click here

Posted by Jackie A. Graves, President on April 19th, 2019 4:39 AM

EducationalVideosandInfographics 

   

Preparation is key to navigating today’s housing market. As part of American Housing Month, ABA offers the following tips to help prepare potential homebuyers.

 

Know your own financial situation.

Before you begin the home loan application process, determine what you can realistically afford.  Take into consideration your credit score, how much debt you currently carry and what type of down payment you are prepared to make.

 

Have your documents ready. 

While each bank may require different documentation, you may be required to furnish the following information depending on your employment and financial situation:

  • ?Pay stubs;

  • Tax returns;

  • Financial statements (one that is less than 60 days old);

  • Copies of additional monthly payments such as car loans, credit cards, and student loans; and

  • Any other information (such as proof of additional income) that you think will help your banker to positively evaluate your credit request positively.

Review the basics. 

Knowing the fundamentals of the home loan process is an excellent way to prepare to choose the right mortgage. Make sure you are familiar with interest rates, loan terms and additional fees associated with buying a home. 

Compare quotes. 

Beyond the interest rates, there are closing fees and points and commissions. You will want to compare these for all the lenders on your list. There are several calculators available online that will help you determine which loan provides the best value, including these from ABA (http://www.aba.com/aba/static/calculators.htm).

Choose a trusted lender. 

Get references from family and friends and do your research. Call your local Better Business Bureau and ask if it has had complaints about any of the lenders you are considering. Keep in mind, federally insured banks are required to operate under a high level of regulatory supervision. A fully regulated bank may be your best choice. To find a fully regulated bank in your area, use the FDIC’s BankFind webpage at http://research.fdic.gov/bankfind.

Read between the lines. 

Slick TV ads, telemarketers or door-to-door salespeople will often offer fast, easy loans for houses, cars and home repair, but not disclose all of the details. Read the fine print. If it sounds too good to be true, it probably is.

 

Ask questions. 

When in doubt, ask for clarification from your lender. Discuss how long the loan process will take, how you will communicate – by phone or email, and who will service your loan. 

 

Source: To view the original article click here

Posted by Jackie A. Graves, President on April 18th, 2019 9:47 AM

FREEHomeRefinanceAnalysis    

With mortgage rates hovering near one-year lows, some homeowners might be enticed to refinance their current mortgage to save on their monthly payments or even pull out some cash for a renovation project.

Whether you’ve owned your home for a short time or you’ve had your mortgage a bit longer, a mortgage refinance should involve careful consideration. After all, you’ll pay fees and have to go through the mortgage approval process again, so you want to have clear goals to improve your overall financial picture with a refinance.

To help you decide whether a mortgage refinance is right for you, here are the best (and worst) reasons homeowners decide to refinance.

Best reasons to refinance your mortgage

Lower your interest rate

Known as a “rate-and-term” refinance, this is the most popular reason homeowners refinance a home loan. Homeowners with a higher interest rate on their current loan may benefit from a refinance if the math pans out — especially if they’re shortening their loan term from 30 years to, say, 10 or 15 years.

Shorter-term mortgages typically have lower interest rates than longer-term loans because you’re paying back the loan in less time, but your monthly payment will likely go up. A rate-and-term refinance can result in big savings for a homeowner if there’s room in their budget for it, says Kurt Johnson, senior vice president with Mr. Cooper, a Dallas-based mortgage lender.

“If you can afford to shorten the term of the loan and you are substantially lowering your rate, it could be a win-win as you’re paying off your mortgage faster and saving a ton of money on interest,” Johnson says.

Consolidate high-interest debt

If you have a hefty amount of high-interest debt on credit cards or personal loans, a cash-out refinance can help improve your cash flow and save you money in the long term, possibly even if you take a slightly higher mortgage rate.

The drawback to this move is that you’ll be unable to deduct the mortgage interest you pay on the cash-out amount that exceeds the current loan balance if the funds aren’t used to “buy, build or substantially improve” your home, according to the IRS.

“There’s this myth that in order for a refi to make sense that you have to lower the rate by 1 percent or more, but I disagree,” says Elizabeth Rose, a certified mortgage planning specialist with AmCap Home Loans in Flower Mound, Texas. “Even with losing some mortgage interest deductibility, in the long run it’s improving your cash-flow situation, saving you money and getting you out from underneath your debt quicker.”

Eliminate mortgage insurance

If you have a home loan with private mortgage insurance, a refinance could help lower your monthly costs, says Dan Snyder, co-founder of mortgage lender Homeside Financial based in Columbia, Maryland. Snyder is also CEO of Lower, a Columbus, Ohio-based direct online lender.

This is especially true if you have a loan insured by the Federal Housing Administration, or FHA. While FHA loans can be a viable path to homeownership for borrowers with little savings or not-so-stellar credit, they come with a big downside: mandatory mortgage insurance. After paying an up-front premium of 1.75 percent of the loan amount, most FHA borrowers continue to pay an annual mortgage insurance premium of 0.85 percent of the loan amount for the remainder of the 30-year term that cannot be canceled. That adds up over time.

To eliminate PMI, homeowners can refinance an FHA loan into a conventional mortgage once they gain 20 percent equity in their home.

Worst reasons to refinance a mortgage

Save money for a new home

Refinancing isn’t free; you’ll pay roughly 2 percent or more in closing costs, and it can take a few years to break even. Moving up to another home before you’ve recouped those costs means you’ll probably lose money even if you manage to lower your monthly payments in the interim.

“If a homeowner is planning to move within the next five years, they may not get as much benefit from a refinance,” Snyder says. “Often, the costs (of a refinance) could outweigh the benefits.”

refinance break-even calculator can help you decide how long you should stay in your home after a refinance to recoup the costs.

Splurge on luxury purchases with a cash-out refinance

Tapping your home equity like an ATM to misuse it without a clear financial goal in mind is dangerous, Rose cautions. Using a cash-out refinance to pay for fancy vacations, a new car or RV, invest in iffy ventures, or to splurge on other luxuries can lead to even more financial turmoil, she says.

“There has to be some sort of net tangible benefit to the homeowner to refinance,” Rose says. “I don’t recommend cash-out refinancing for anything that won’t add security to or improve your financial picture.”

Move into a longer-term loan

Snagging a lower rate and lowering your payments may seem like a great move, but refinancing when you’re already halfway or more through a 30-year mortgage is rarely a good idea, says Steven Jon Kaplan, CEO of True Contrarian Investments in New York City.

“Before you refinance, the most important consideration is how much interest is being paid throughout the remainder of the loan, and how long the loan will continue,” Kaplan says. “Because all mortgage loans are amortized the same way, almost all of the monthly payments in the early years consist of interest, while almost all of the payments in the final years of a mortgage consist of paying down principal.

“When you’re in the final half of a mortgage, such as the final 15 years of a 30-year mortgage, it’s a very bad idea to refinance because you are finally at a point where you are paying back more principal than interest. When you refinance, the amortization begins from scratch so you will waste the first decade or so paying off almost all interest.”

Pay off your home faster if you haven’t met other financial goals

Refinancing into a shorter-term loan solely to pay off your loan faster can short-change you on other financial goals. More of your money will be tied up in your house that could be put toward increasing your retirement account contributions, college fund savings, paying down debt or making investments with higher returns.

After you’ve checked off those boxes and if the spread between your current interest rate and a shorter-term refinance rate isn’t that large, consider knocking down your mortgage debt another way, recommends Johnson, the Mr. Cooper lending executive.

“You can always pay more principal on your existing mortgage to pay it off in 15 years while giving yourself the option of making smaller payments if you are faced with financial hardship (in the meantime),” Johnson says.

You recently bought your home

Even if rates dip slightly within the first year of your home purchase, refinancing into another mortgage too soon isn’t advisable, Johnson says.

“This is lender churning, which is usually beneficial for the lender but, when refinance costs are considered, rarely benefits the customer,” Johnson says.

Source: To view the original article click here

Posted by Jackie A. Graves, President on April 17th, 2019 8:19 AM

FREEHomePurchaseAnalysis    

While everyone's homebuying timeline is going to be different, it's highly recommended that everyone work with their lender to get pre-approved before beginning to house hunt. Shopping with a pre-approval letter in hand boosts the confidence of both you and the seller which helps your journey run a lot smoother. So—what is a pre-approval letter and how do you get one? Gather your travel documents and let's hit the road.

What is a pre-approval letter?

pre-approval letter is a letter from your lender that tells you the maximum amount you are qualified to borrow. Getting a pre-approval letter is not a loan guarantee, it is simply documentation that states how much a lender is willing to lend you—pending further details.

By starting your homebuying process in the lender's office instead of in an open house, you can discuss loan options and budgeting with your lender. This should provide you additional guidance for your house hunting price range.

Pre-approval letters are also valuable to the seller because it proves you are a serious buyer. A pre-approval letter confirms that your credit and documentation have been verified—which can help you move faster in the competitive spring homebuying market. Be aware, pre-approval letters have an expiration date so be sure to ask your lender how long your letter will remain valid.

What is your lender looking for?

Start by getting in touch with a lender and filling out a loan application. Your lender will ask you to provide W–2 statements, bank statements, credit report and tax returns. They will want to make sure you are a good credit risk and have the financial ability to make your payments on time.

To do this, your lender will assess and evaluate the “four Cs”:

  • Capacity:  Your current and future ability to make your payments

  • Capital or cash reserves:  The money, savings and investments you have that can be sold quickly for cash

  • Collateral: The home, or type of home, that you would like to purchase

  • Credit: Your history of paying bills and other debts on time

Getting a pre-approval letter doesn't mean you are committing to that lender for your loan. You will want to talk to multiple lenders to decide who can offer you the best deal that meets your needs. Note, the amount listed on your pre-approval letter not necessarily how much you should borrow – it's the maximum. Only borrow an amount that you feel comfortable repaying.

What to know more about the homebuying process? Be sure to follow our spring homebuying series

Next Stop...

 

Source: To view the original article click here

Posted by Jackie A. Graves, President on April 16th, 2019 11:46 AM

Archives:

My Favorite Blogs:

Sites That Link to This Blog: