To refinance a mortgage means to pay off your existing loan and replace it with a new one.
There are many reasons why homeowners opt to refinance, from obtaining a lower interest rate, to shortening the term of the loan, to switching mortgage loan types, to tapping into home equity.
Each has its considerations.
Lower Your Mortgage Rate
Among the best reasons to refinance is to get access to lower mortgage rates. There is no “rule of thumb” that says how far rates should drop for a refinance to be sensible. Compare your closing costs to your monthly savings, and determine whether the math makes sense for your situation.
Shorten Your Loan Term
Refinancing your 30-year fixed rate mortgage to a 20-year fixed rate or a 15-year fixed rate is a sensible way to reduce your long-term mortgage costs, and to own your home sooner. As a bonus, with mortgage rates currently near all-time lows, an increase to your monthly payment from a shorter loan term may be negligible.
Convert ARM To Fixed Rate Mortgage
Homeowners with adjustable-rate mortgages may want the comfort of a fixed-rate payment. Mortgage rates for fixed-rate mortgages are often higher than for comparable ARMs so be prepared to pay more to your lender each month.
Access Equity For Projects, Debts, Or Other Reasons
Called a “cash out” refinance, Ardmore homeowners can sometimes use home equity to retire debts, pay for renovations, or use for other purposes including education costs and retirement. Lenders place restrictions on loans of this type.
A refinanced home loan can help you reach specific financial goals or just put extra cash in your pocket each month — just make sure that there’s a clear benefit to you. Paying large closing costs for small monthly savings or negligible long-term benefit should be avoided.
Many lenders offer low- or no-closing costs options for refinancing. Be sure to ask about it.
The mortgage pre-approval process
Many lenders have a different take on what the pre-approval process should include, or when they feel comfortable issuing a pre-approval letter. Some lenders are willing to just discuss your information over the phone and issue a pre-approval letter, which some may think is great since it’s so easy, but there is quite a bit more to getting pre-approved then just having a verbal conversation about how things should look. Most mortgage applicants also don’t know the difference between being “pre-qualified” and being “pre-approved”. “Pre-qualified”, this is an ambiguous term that is used to provide the homebuyer a false sense of security to engage in a mortgage transaction without the loan officer doing their proper due diligence. It’s a cop-out for the explanation that should have been: “Based on the verbal information you sound good, however before you make an offer we need to verify everything we went over, that will include a credit check, reviewing income & asset documentation, and if needed, even verifying employment directly with your employer.” In my opinion you should never be providing that initial paperwork after an offer is made, it should always be done prior to your offer.
The steps should actually go like:
1. Meet with a loan officer (this can be face to face or over the phone, I do not recommend solely done via email) 2. Loan officer will explain the process to the homebuyer, what will be done at each milestone, when out of pocket costs should be expected 3. Loan officer and homebuyer will verbally discuss the homebuyers situation, including financials, credit and any special circumstances the homebuyer is in (like getting gift funds, starting a new job in a new area, past employment, etc.) 4. Homebuyer will complete a loan application (this is recommended to do with the loan officer “live”, not just simply filling out the application and sending it to the loan officer) and credit is checked 5. Homebuyer will provide loan officer documents the loan officer needs (paycheck stubs, W-2’s, tax returns, bank statements, letters of explanation) 6. Loan officer reviews documents and contacts employers for any further required verification (for example averaging overtime, commissions, etc. and clarifying start dates if employment has been less than 2 years), including running the loan through the automated underwriting system (be it FHA, VA or conventional). If the loan is “borderline” then the loan officer should contact underwriting to get clarification on how any unique aspects of the loan will be handled, and may even go so far as to send the entire loan file to underwriting to have a conditional underwriting approval issued for a “TBD” property address. 7. Loan officer issues a pre-approval letter letting the homebuyer know they are pre-approved for a certain amount 8. Homebuyer makes an offer and it’s accepted 9. Homebuyer or their real estate agent provides loan officer copy of contract terms 10. Loan officer re-runs actual terms/conditions through automated underwriting again 11. Loan officer/processing staff generates the loan application/disclosures for the homebuyer to sign/initial/date/return to the loan officer 12. Loan is sent to underwriting (sometimes the title report needs to come in, sometimes the appraisal needs to come in – YMMV depending on the lender – the title report is ordered immediately, the appraisal can be ordered once you receive the application/disclosures) 13. Underwriting reviews all documents and usually additional documents (called “conditions”) are required, such as evidence of homeowners insurance, small items on the appraisal corrected (if needed), amongst a laundry list of possibilities (brace yourself for the underwriter to ask for small items so it doesn’t come as a surprise, sometimes it isn’t much at all, sometimes it can be a bit) 14. Conditions are sent in to underwriter and reviewed, final loan approval is issued 15. Loan officer informs homebuyer when documents can be prepared and delivered to title/escrow officer or closing attorney (“closing agent” is the generic term) for the closing (usually no more than 2 days from final approval) 16. Closing agent prepares the final settlement statement (called a HUD-1) for lender approval, lender approves, homebuyer goes in to sign final loan documents in front of a notary 17. Depending on the state you are buying in, it may fund/record the day you sign or there could be a few day period after you sign before it funds & records (rule of thumb is if you are east of the Rocky Mountains it’s the same day, west of the Rocky Mountains usually there is a couple day delay – but vice versa can certainly be arranged ahead of time).
See how in the above process a majority of the processing/verifications were taken care of prior to the homebuyer going into escrow on the home, and not before? It cuts down on the “your paperwork didn’t come over in the correct format and this is delaying your closing date” type of excuses. That is the way to properly handle a purchase transaction in my opinion.
If you want to know what steps your lender is taking to insure your pre-approval is solid, just ask, they shouldn’t mind telling you, and it’ll give you both a chance to feel more comfortable with the mortgage transaction process. Remember, this is like school, there are no stupid questions, and at no point in the process should your loan officer make you feel like you are wasting their time by asking questions.
1. Get a secured credit card.
A secured credit card is just like a “regular,” or unsecured credit card, only you are required to put down a security deposit – typically $300 to $500 – to provide assurance to the creditor that you will repay your debt. Your credit limit is often the amount of your security deposit, or a percentage thereof.
Many people confuse a secured credit card with a debit card, however the two are very different. First, banks do not report debit card usage to the credit bureaus, as a debit card is not an extension of credit. A debit card is merely a convenient way to access the funds in your bank account.
Creditors, on the other hand, do typically report secured credit card activity to the credit bureaus, as a secured credit card is an extension of credit. Your purchases are not deducted from your security deposit. Rather, each time you charge something, you are effectively borrowing money from the credit card company and are obligated to repay that debt. As a result, how responsibly you use a secured credit card will affect your credit score – both positively and negatively.
[Free Resource: Check your free credit report and score]
2. Only charge what you can afford to pay off in full.
Building credit means consistently demonstrating your ability to pay back any money you borrow. Your goal is to prove to creditors and lenders that you can responsibly manage debt. That’s why it’s smart to start small – Only charge purchases that you can afford to pay off in full every month.
Unfortunately, it’s not enough to open a credit card – secured or otherwise – and sit on it. If you don’t use your credit card, you’re not demonstrating anything. Use your card at least once a month for small purchases like inexpensive meals, gasoline and drug store essentials. Try to not charge more than 50 percent of your credit limit in a given month however, as that can take a toll on your credit score.
3. Pay on time every month.
The most important thing you can do to build and maintain a good credit score is paying all of your bills and debt obligations on time every month. Even one late payment can significantly damage your credit score, especially early on.
4. Avoid applying for numerous accounts.
Each time you apply for a credit card or loan, your credit score takes a small hit. And there’s no point to chipping away at a credit score you’re trying to build up, especially when you haven’t yet demonstrated that you can handle just one credit card. Instead, use that energy to prove to yourself that you can keep the balance low on one credit card and pay the bill on time every month.
5. Check your progress by checking your credit report and score.
After six months of timely credit card payments, check your status by viewing your credit report and score. Pay special attention to what’s on your credit report and any positive or negative factors listed, so you have a better idea of what you need to work on next. Also make sure to take a look at your credit score – It will help you make sense of your credit report and give you an idea of how well you’re doing.
1.”Think like a wise man but communicate in the language of the people.”
William Butler Yeats
2.”Say what you mean, and mean what you say, but don’t say it mean!”
3.”Good communication does not mean that you have to speak in perfectly formed sentences and paragraphs. It isn’t about slickness. Simple and clear go a long way.”
What makes home buyers grimace when they tour a home for-sale? Don’t let one of your listings fall prey to one of these common buyer pet peeves. A recent article at Zillow highlights some of the following turn-offs:
- Pets: Dirty kitty litter boxes or dog toys scattered in a room can turn off buyers who associate pets with unsanitary homes. Remove all traces of pets in a home and pay attention to the home’s smell; get rid of any lingering pet odors when homes are for sale.
- Kid items: Don’t let the kids overtake a home with toys cluttering every square inch. Also, pay attention to any sanitary or personal items involving infants. For example, “leaving breast milk, a breast pump, or dirty baby bottles on the kitchen counter could make a buyer feel that the home isn’t clean or sanitary,” according to the Zillow article.
- Personal items: Watch the cleanliness of the bathroom and what’s left out: For example, make sure toothpaste residue isn’t left in the sink or prescription medications are left out in the open. “Buyers want to feel clean in the bathroom … they don’t need to be reminded that they will be taking over a ‘used’ bathroom,” according to the Zillow article. Source: Zillow