10 Things to Consider before you Refinance – Part 5

Part 5 of a 5 part series – The last one

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Here it is — The last post of this series.

9.  Do you like and trust your lender/broker?

10.  Are you ready to pull the trigger if it makes sense?

This post contains questions 9 and 10 of 10.

9.  Do you like and trust your lender/broker?

This is extremely important.  You will be dealing with your lender/broker for the next 30 days minimum during the loan process. And the loan process today is filled with challenges.  Sometimes things go very smoothly and there are no hiccups.  More often than not there will be some problems and your lender/broker will seem more like a spouse over the next month or two.  There are still bad lenders/brokers out there who don’t know what they’re doing or who aren’t focused on your best interests.  There are many horror stories of homeowners that were misled, or did not receive proper disclosure and explanation so they didn’t understand the loan that they ended up closing.  There are also many instances where the closing costs change when the homeowner goes into signing.  Often times, people don’t even realize that they were charged much higher closing costs than they were originally told.  At the same time, there are several great lenders/brokers out there.  Trust is a difficult thing so do some homework and make sure that you like the person that you are working with.  This rings true for many folks that have gone through the refinance process in the past.

10.  Are you ready to pull the trigger (move forward) if the refinance makes sense?

This is perhaps the most important question of all.  Are you ready to pull the trigger?  If you answer yes to this question then read no further.  If you cannot answer yes then there are several factors at work.  Is the benefit not great enough?  Are you trying to time the market? (anyone that can time the market retired a long time ago and can pay cash for their house, so lets assume that you cannot time the market)  Are you always slow to act?  My point is simple: don’t waste time doing the research if you are not ready to move forward if your refinance makes sense for your unique situation.  Get your ducks in a row and find a lender/broker that you like and trust.  The previous 9 questions mean nothing if you are not ready to pull the trigger.  If you have determined that there is benefit then you need to move forward, it really is that simple.  If you move through this process and determine that there is not currently a benefit but there would be if rates drop, setup a rate watch with your lender/broker.  When rates drop to that level they can call or email you at that very moment and you can lock in that interest rate.  Be proactive.  Be educated.  Think long term.

10 Things to Consider before you Refinance – Part 4

Part 4 of a 5 part series

Bookmark this page or add it to your favorites so you can easily return as we roll out the rest of the 5 part series over the next week or so.

7. Are there benefits?

8. Do you know your credit score?

This post contains questions 7 and 8 of 10.

7.  Are there benefits?     

This is a complex question and very well could be the last question that you ask yourself.  If you are in an adjustable rate mortgage and you plan on staying in your home forever then there are almost certainly benefits.  If you are paying off high interest debt then there are almost certainly benefits.  The problem arises when you don’t truly understand your current situation and you also don’t truly understand the loan that you are refinancing into.  This is when it gets blurry.  It may seem like a good idea at the moment but you have to keep the big picture in mind.  Where will this refinance leave you in 5, 10 or even 50 years?  If your home loses value (which many have recently), will you be able to look back and say that you benefited from a refinance?

8.  Do you know your credit score?

Your credit score can dramatically affect the interest rate that you are able to obtain with a refinance, and it may affect your ability to refinance at all.  Credit scores are becoming increasingly important to banks and lenders because of the recent sub-prime crisis.  When you go into the process knowing and understanding your credit score than you can have a better idea of what to expect.  Get a copy of your credit report and see if there are any errors and/or any simple ways to improve your score prior to a refinance.  Many folks have blemishes on their credit report that they don’t even know about.  Paying down some credit cards may dramatically increase your credit score as well.  Know and understand your credit score and credit situation prior to your refinance. Many career mortgage professionals can help you correct errors on your credit report and increase your score as part of the loan process. Be very cautious about paying a credit repairs service hundreds or thousands of dollars to perform these services.

Do you know what affects your credit score?

10 Things to Consider before you Refinance – Part 3

Part 3 of a 5 part series

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5.  Will you be paying off non-mortgage debt?

6.  Do you need cash out?

This post contains questions 5 and 6 of 10.

5.  Will you be paying off non-mortgage debt?

Debt consolidation can be a great reason to refinance.  Take a long hard look at all of your debt to determine the interest rates that you’re paying.  You can create additional cash flow each month and reduce(non-deductible) interest exposure by paying off debt with your mortgage.  Rolling your debt into your mortgage can have two long term benefits, a lower interest rate than you are currently paying and much lower payments that you are currently making.  Debt consolidation usually results in the most beneficial form a refinance and is one of the most underutilized tools that you have with your mortgage.

Use Cash Out for Home Improvements

6.  Do you need cash out?

Cash out refinancing can be used for absolutely anything; however I would not recommend it for absolutely anything.  You can take cash out of your home to pay for college, start a business, payoff debt, buy a car or even take a vacation.  Taking cash out of your home is a very serious decision that requires some serious deliberation.  If you have a financial advisor, this is why you have them.  Discuss the possibilities with them and understand your long term goals before taking cash out of your home.  If you have a trusted mortgage broker or lender then you can certainly discuss your options with them as well.  A vacation may not be a great reason to take cash out of your home but if your total financial picture allows for it than it is certainly not a bad thing and it is much better than taking a vacation on your credit cards.

10 Things to Consider before you Refinance – Part 2

Part 2 of a 5 part series

Bookmark this page or add it to your favorites so you can easily return as we roll out the rest of the 5 part series over the next week or so.

3.  How long do you plan to stay in your home?

4.  What will the closing costs be?

This post contains questions 3 and 4 of 10.

3.  How long do you plan to stay in your home?

This is obvious.  If you will only be in your home for one year it may not make sense to refinance at all unless you can do so with very little or no cost whatsoever.  If you plan to live in your home for the rest of your life then it probably does not make sense to get into a short-term adjustable rate loan.  These are obvious examples but there are some more complicated decisions.  If you plan to stay in your home for 5 more years does it make sense to get into a 5 year ARM?  Perhaps a 7 year ARM would limit some of the risk but it may even make sense to get into a 30 year fixed rate depending on market rates and your particular situation.

Know your Refinance Costs

4.  What will the closing costs be?

This is a critical piece to the puzzle.  Your savings from a refinance will generally be partially offset by closing costs.  So how long will you need to stay in your new mortgage to recover the closing costs?  Does it make sense pay the closing costs compared to the savings?  This question will require some clear answers from a broker or lender before you can make an educated decision.  www.FreeHomeRefi.com eliminates the need for this question by connecting you with a lender that will not charge you closing costs other than title and appraisal (in some cases).

10 Things to Consider before You Refinance.

This is the first of a 5 part series.

Bookmark this page or add it to your favorites so you can easily return as we roll out the rest of the 5 part series over the next week or so.

This post covers the first 2 of 10 Questions that you should ask yourself before you refinance.

1.       What type of loan are you in?

2.       What type of loan are you looking for?

1.   What type of loan are you in?

You have to understand the loan that you’re currently in before you can understand the benefits of a potential refinance.  Over the last several years, many people have not truly understood their current loan situation.  A prepayment penalty may not have been explained to them, they are in an adjustable rate loan and did not realize it or perhaps the homeowner was put into a complicated, negative amortization loan.  Talk with a broker or lender that you trust and have them look into your current mortgage.  This is a good idea for everyone that has a mortgage loan. You don’t want any surprises next month or even a few years down the road.  Know your situation before you get started.

2.  What type of loan are you looking for?

What type of loan are you looking for?

You cannot start to shop for a loan if you do not know what you are looking for.  There are many loan programs still available with many different terms.  You may need to answer the questions that follow before you can understand what type of loan is best for your situation. But it is critical that you know exactly what you’re looking for.  This will prevent you from being persuaded into a loan that you do not understand and may not be in your best interest. It will guarantee that you get exactly the type of loan that will work best for you and your family.  Once you understand your situation, do some research and talk with more than one professional about the different mortgage products that are available. You might get differing opinions but it is imperative that you get educated if you expect to get the very best deal for yourself.

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A Cure for the Refinance Addiction

The Typical Refinance and the Implications

A change in the mortgage industry has been needed for quite some time.  When house values rose continuously for so many years many homeowners believed that the value of their home would continue to rise forever.  This led many people to refinance their homes without thinking of the implications.  What were the implications?  Many folks were charged enormous fees by mortgage companies and they didn’t bat an eye because their home value would continue to rise forever.  The equity lost seemed to make no difference as long as they could get the cash out that they were looking for or get their payment reduced.  This brings us to the heart of the problem.

Homeowners would refinance to reduce their payment by let’s say $150 per month.  The cost of the refinance added $8,000 to the balance of their mortgage.  The savings was $1800 a year, but that savings was typically spent by the homeowner to increase their quality of living.  They have lost equity in their home and at the end of the day they don’t have anything to show for that lost equity, other than a few extra pair of shoes or some other product that gave them immediate gratification.  Obviously not everyone “wasted” the money but this example is simply to prove a point.

Refinance Addiction

Most homeowners would refinance their home again before they even recovered the cost of their first refinance with their monthly savings.  They paid $8,000 in cost to save $1,800 a year for 3 or 4 years.  This is a lose-lose situation.  Consider this, the average 30 year fixed mortgage in the United States is 1.9 years old and it is commonly said that the average American will refinance every 5 years.  This situation played out fine for the homeowner until house values started to decline.  Once home values started to decline the true effect of that lost equity started to be felt, and now everyone who holds a mortgage or uses any type of credit is feeling the effect.  Mortgage brokers did not bother to explain this simple idea to most of their clients and many people did not truly understand this concept when they were refinancing, they simply knew that their monthly expenses would decrease or that they would get some cash in their pocket via a cash out refinance.

This leads us to today, and a change that is coming in the mortgage industry.

There is a way around all of this.  A way to create transparency for homeowners.  A way to eliminate over charging by greedy mortgage companies.  A way for homeowners to truly understand what they are getting and how it is benefiting them.  How can this be done?  Before we go into the solution let’s think about a concept.  What if a refinance did not require you to pay the mortgage company?  What if the only charges for refinancing were title fees and possibly an appraisal fee?  That would cost around $2,000 for a refinance.  It would be very simple to determine monthly savings compared to cost and it would also be very easy to compare offers.  If title fees and appraisal fees are the same with every company, which they are, the homeowner would only be left to compare interest rates.  There would be no points and no fees and very little would be added to the loan amount.  Sound like a simple solution to a growing problem.

So would it be possible to offer a free refinance?

The simple answer is yes.  It is already available.  So what’s the problem?  The problem is that most mortgage companies will charge the consumer a higher interest rate in order to waive their fees.  There is a new company that is changing this.  They have teamed up with lenders to offer a truly free refinance with the same interest rate that would be charged with their typical lender’s fees.  How is that possible?  The mortgage industry is struggling.  Companies are having trouble finding clients partially because they burned their bridges along the way and did not build relationships with homeowners by offering fair mortgage refinancing in the past.  There were bait and switch tactics and outright lies.  Margins are also being reduced and companies aren’t making as much on a refinance transaction as they used to.  In exchange for your business these companies are now willing to waive their fees to earn your business.

How do I know that they are not just giving me a higher rate?

A simple question deserves a simple answer.  If you work with the company that has developed this idea they will make sure of it, but don’t take my word for it.  Go down to your local bank and have them give you a good faith estimate.  Once you have that in your hands, fill out an application online that same day.  Tell the lender that calls you that you have an estimate and send them the estimate.  Tell them that you want the same rate that your bank is offering without the fees.  You will be pleasantly surprised.  So why am I promoting this company?  To be honest I have known the founders of this company for years.  They are good people and they have a great idea.  These guys have worked very hard to develop this idea with the lenders and they maintain the highest quality of service of any company out there today.  Don’t take my word for it, they have a toll free number that you can call and get answers to just about any questions that have to do with refinancing your mortgage.  I believe that this effort will truly change the way that things are done in the mortgage industry.

To learn more visit www.freehomerefi.com .

FHA Loans

All you hear about these days is FHA loans are going to save the world from foreclosure. What you don’t hear about is that FHA is a very under utilized tool for buying a home.  FHA has purchase mortgage home loans which allow you to borrower 97% of the homes value and borrower an additional 35% towards rehabbing a property.  In the purchase world there is no better rate or home loan out there and in our opinion anyone doing a refinance should move to the security of a government backed loan.  Did you know rates are better on an FHA loan than a traditional loan right now?  Call us up we would be happy to chat.

Freddie Mac and Fannie Mae to Fail?

The word on the street is that Freddie Mac and Fannie mae are leveraged to the hilt and they may be in no position to refinance the debt as there assets are dwindling on a daily basis.  I guess the question is what would happen if they were to fail; no one really knows but speculators or claiming anything from our dollar sinking to no value or even a depression.  I personally am hoping this doesn’t happen as no good can come from the government getting involved to save the Freddie/Fannie which is the only possible out come should one fail.  Our call here at Fhr is to hope for the best possible out come which is the market will correct itself and there will be no government intervention.  Only time will tell but my guess is in the coming weeks we will have many stories and predictions…

More info on Fannie and Freddie

No more Home Loans?

With all that is being said about the current state of the credit markets and with the $700 billion dollar market bail out the question keeps coming up, will i be able to complete a Home Refinance if there are no loans being done?  This is a great question with no honest answer and if someone tells you otherwise, run.  Truthfully, no one knows what is going to happen to the market but it is my opinion that there will always be some sort of market for good loans.  I’m of the belief that if you work with a solid company who knows the business and understands the industry, then there will be a home for your loan.  I would be lying if I said it was easy to get a loan, and now it’s a little bit harder, but we see alot of traffic to our site on a daily basis and it hasn’t slowed down which means there is a need for loans.