Tips for Refinancing your Mortgage
Many homeowners are finding themselves in a situation now where it has
become necessary for them to refinance their mortgage. This can be due
to a variety of different reasons, including negative equity in the
home, a skyrocketing interest rate or payments that have suddenly become
unaffordable. Unfortunately, understanding the refinance process can
sometimes be difficult for some homeowners. One of the biggest problems
that many homeowners face is having to pay out hundreds of dollars in
application fees to determine whether they are even eligible for a
refinance. The prospect of paying a large chunk of money only to
discover mid-way through that they will not be able to qualify for the
refinance is certainly not an appealing thought for any homeowner.
The largest hurdle for homeowners interested in refinancing is a lack of
equity in their home. This is often where the refinance process falls
apart. Homeowners who have purchased their home within the last three to
five years are typically more at risk for this problem. It can be
particularly problematic for recent homebuyers who also made a
relatively small down payment on their home when they bought. Homeowners
who live in neighborhoods where prices have declined recently are also
at risk for experiencing such problems.
The rapidly increasing prices of home sales over the last few years
combined with mortgages that featured low down payments or even no down
payments have now created a situation in which a surprising number of
homeowners find they simply do not have enough equity in their homes in
order to refinance. Due to the fact that lenders are wary of lending
more money that the value of the actual home, homeowners who have little
to no equity and especially those who are upside down on their mortgages
have found significant trouble in qualifying for a refinance.
Perhaps even more problematic are the large numbers of homeowners who
simply are not sure whether they have enough equity to qualify for a
refinance and yet face no other choice but to apply for a refinance and
pay the upfront application fees in order to determine whether they are
eligible for a refinance.
If you do not want to go to the trouble and expense of submitting an
application to determine whether you qualify for a refinance, you can do
some math on your own to get a ballpark idea of whether you might
qualify.
First, estimate the value of your home. This can be tricky for many
homeowners. Many homeowners make the mistake of either over-valuing or
under-valuing their home's worth. If you are not sure of your home's
value ask a real estate agent to give you a free comparative analysis.
Alternatively, you can check out
HomeGain, a website that can provide a comprehensive valuation of your home's worth immediately.
The next step is to talk the matter over with a loan officer and provide
them with the approximate value of your home. The loan officer will be
able to discuss the lender's guidelines with you regarding loan to value
ratio. The traditional rule when it comes to loans is to maintain an 80%
loan to value ratio, but this is not always the case with all lenders.
Some lenders will offer loans with a higher loan to value ratio in some
circumstances, especially with mortgage insurance. Mortgage insurance is
a special type of insurance that is paid on the part of the borrower and
which will protect the lender in the event that the borrower should
default on the loan.
In the event that you decide to go ahead and submit an application, you
should make sure that you find out precisely what the upfront
application fees will be so that you can be fully prepared. Generally,
you should expect to pay between $300 and $800 in fees. You may also
wish to shop around for lenders in order to obtain the lowest
application fees possible, but make sure that you also consider the
terms to make sure you do not sacrifice a low application fee for a
higher interest rate.
You should also try to find out whether the appraiser will require you
to pay the appraisal fee upfront. While at one time this was not common,
an increasing number of appraisers are requiring it due to the fact that
so many refinance applications are falling apart at the appraisal point.
Do be aware that while it can be tempting to go ahead and purchase your
own appraisal before you apply for the loan; this is not typically a
good idea. As the rules for loans change, in most cases, the appraisal
must be ordered by the lender. If you attempt to jump ahead and get your
own appraisal, you may find yourself in the uncomfortable position of
having to pay for two appraisals. If you think there are great benefits to refinancing your home
to take advantage of the low interest rate, you can check out
.
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