A house – a home – is really a sacred thing. At the end of a long day, it is so nice to have a home to walk into, grab a cold one out of the fridge, sit down, relax and feel secure and safe.
Yet this good feeling is in jeopardy as the pressures of a troubled economy catch people struggling with mortgage payments, unemployment, and higher prices. Our sluggish economy is very evident in the pace of home sales, still well below healthy levels. It could be years before the market heals.
And so it is that the average U.S. rates on 30-year and 15-year fixed mortgages have fallen to record lows. Mortgages have become “cheap,” in hopes of boosting home sales. Maybe selling your home is not in the forecast, but it might be a good time to cash in on these low rates by refinancing your mortgage.
Bob Howe of Residential First Mortgage, who partners with his daughter Kathy, has a talent for listening to his clients and figuring out financial solutions that go hand in hand with selling, buying or refinancing a home. With more than 30 years of experience in real estate and mortgage financing it was comforting to hear his positive attitude as he explained what to prepare for and understand when refinancing a home.
Q: When is it a good time to refinance?
A: Interest rates are extremely low, some loan programs down in the 3 percents which are historic lows. Rates have continued to decline as the US economy and our globalized world have witnessed economic challenges. So, considering a refinance could well be a good idea right now. Have your trusted lender analyze your mortgage situation and see if you can capitalize on the low rates. But even though the interest rates are low, some people unfortunately can’t take advantage of the situation. Their debt ratio, income and credit rating might be in line, but due to the decline in property value, refinancing may be difficult if not almost impossible.
Q: So if a borrower has already refinanced to capture falling interest rates, is it ok to do it again?
A: The direct answer to that question is yes, but only if it’s a benefit to them. The rate has to be low enough and the costs in line to benefit the client. There are many things to consider for the client when doing a refinance. How long will they live in the home, what is the best loan program for their short and long term payment and cash flow goals. Most clients are opting for the 30 or 15 year fixed rates knowing that these rates may never be seen again in their lifetime.
Q: What preparation is needed for the lender so there are no delays in the process?
A: The key items for a purchase or refinance are income documentation, assets and your credit report. What can get you the best interest rate is your credit rating. Excellent credit gets you the lowest rates, so take a good look at your credit report each year. A balance over 50% of a credit card limit can lower your credit score. Paying your credit card under 50% of what is owed can help your score. Also, the equity in your home plays a big part in refinancing.
Q: So it’s important to know the value of your home when going into the refinancing process?
A: Absolutely, your house appraisal determines the equity in your home and it’s how the bank bases their loan. Naturally having a large equity in your home can result in lower rates. Also, if your equity is high enough you can avoid mortgage insurance where you have to pay mortgage insurance for higher risk if you go over 80% loan-to-value (LTV).
Q: What are some of the rules a savvy borrower understands to improve chances for an attractive rate?
A: Once again knowing what your credit report looks like and if it needs improvement. Get copies of your credit scores and credit history from the three main credit reporting bureaus. Most lenders want to stay away from scores lower than 620. Also take note, after the lender checks your credit and you’re approved, don’t assume it is all over. Most lenders will check again before the loan closes. So don’t apply for new credit cards or credit lines. Keep paying your bills on time. Don’t close any long standing accounts. Don’t finance a new car. Keep your credit in the best light as possible.
Q: Are there any lender based programs that can help borrowers refinance even with an inflated LTV?
A: There’s a program called HARP 2.0 – Home Affordable Refinance Program. It’s designed to help homeowners get a more affordable and more stable mortgage. There are some requirements such as the loan must be a Fannie Mae or Freddie Mac loan and sold on or before May 31, 2009 to get in the game. And even though you might be upside down on your loan, this program can help you get out of that position. Check out: (http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx)
Q: What impacts does the “Responsible Homeowner Refinancing Act of 2012 have on homeowners thinking to refinance?
A: This new bill by U.S Senators Robert Menendez (D-NJ) and Barbara Boxer (D-CA) is not approved yet, but could expand the opportunity to get through the refinancing door and allow more people to keep their homes. It appears to be the next generation HARP and may allow FHA borrowers and other borrowers who do not fall into the current HARP 2.0 guidelines to refinance. Time will tell if it comes to fruition.
Residential First Mortgage
949-852-0400 ext 219