For many people there comes a time when it makes sense to refinance their home mortgage. There can be any number of reasons to do this but for most people the primary goal is to lower their interest rate and their monthly payment. Everybody’s situation is different so the reasons for doing a refinance can vary from person to person.
When you do a home mortgage loan refinance you are basically taking out a new loan and using it to pay off an existing loan. You of course do not want to refinance if your new loan will cost your more in interest and monthly payments so it pays to research any new loan carefully.
As you delve further into the realm of refinancing a home you will undoubtedly run into terms that you may not be familiar with. These may include the following:
Term Length – This is the amount of time you have to pay back the loan. The majority of loans go for either 15 or 30 years. The longer the term the more interest you will pay during that term.
Fixed Rate Mortgage Loan – This is a mortgage in which the rate is set at closing and does not change for the life of the loan.
Adjustable Rate Mortgage (ARM) – This is a mortgage with an adjustable rate. That means the rate can move up or down depending on what the prime rate or treasury index it is tied to is doing. This type of loan usually starts out at a low rate that makes it a great deal, but consumers need to be careful if and when the interest rate goes up, increasing the monthly payment.
Annual Percentage Rate (APR) – This number represents all the costs associated with a mortgage shown as an interest rate. It can vary among different lenders because they all calculate it a little differently. If you are comparing rate use the Good Faith Estimate that all lenders are required to provide.
Good Faith Estimate (GFE) – This is a document that all mortgage lenders are required by law to provide to all applicants. It will give a full account of all the estimated costs for a loan from a particular lender. You should have this in hand no longer then 3 days after filling out a loan application.
Loan to Value Ratio (LTV) – This ratio is a percentage that shows what percent you are borrowing against the appraised value of your home. Keeping this ratio below 80% is what most lenders are looking for. If your LTV is higher then 80% you will probably be required to purchase mortgage insurance in order to refinance.
Points (Discount & Origination) – There are two types of points that you can pay. Discount points are paid up front at the closing and are used to bring down the interest rate. Normally one point will equal one percent of what your total loan amount is. Origination points, or fees, are paid for the services rendered by the loan representative.
Refinancing a home mortgage loan can be a good way of freeing up money for other uses but it pays to pay close attention through out the process because you don’t want some hidden cost or fee to make your new loan cost more than the original mortgage.
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What is the deal with mortgage loan modification schemes?I heard on NPR that mortgage brokers who made a lot of money during the housing boom are now making a lot of money doing loan modifications. How is loan modification lucrative? How do people get paid to do loan modifications?
Okay, Both posters before me are correct in some aspects but are off in others. First you have to check your Credit Report and Credit Score before you do anything as far as a loan. The reason for this is because when you ask a bank about loans they want to know your credit score to see what bracket/program is best for you. Now let me get onto the question you primarily asked. Refinancing takes your existing mortgage and reduces your interest rate if you qualify or lets you either expand or lower your monthly payments. Example: Lets say you owe $10 for 30 Years Fixed @ 6.25% if you go to a bank you can tell them you want to refinance your existing mortgage and what rate they would offer based on your Credit Score and the amount of money you need to cover your existing mortgage and if you need money out which in this case you do they would add that to your original $10. Also they want to know how long you want to take out the refinanced mortgage for either 15 Years, 20 Years, or 30 Years. *Note* the longer the loan the more interest paid over time. I tell people to get a FIXED Mortgage which means the rate can't increase based on the economy and in other words guarantees your monthly payment will remain the same all the time. Now a Second Mortgage is an extra loan on top of your existing mortgage so if you have a monthly payment on your current mortgage of lets say $200 then add the price of a new loan and the combined amounts pays the 2 of them. In my opinion do a refinancing mortgage for a few reasons. 1. It will be easier to get approved if they see that you're paying off your bills with it which is like a Debt Consolidation and also it lowers your interest rate which currently are the best rates in over 20 years. Now be aware that getting ANY of the loans above is extremely difficult for the reasons below.
1. Depending on your existing mortgage they will have to appraise your property value to see how much of a loan you are able to apply for. Almost 90% of the time they allow you to take up to 80% of your homes equity so if your house is worth $100.00 they will allow you up to $80.00 if you have no balance on a mortgage but in this case lets say you owe $30 dollars they allow you to take out $50.00. Also note that since the economy has taken a big hit home values have declined rapidly. So this may cause some trouble depending on how much you need and currently owe.
2. Banks now have tighter restrictions on who they can lend money out to. So almost all banks will require either an upfront cost and a Credit Score of at least 650 but now they made it even more difficult if you were ever late on your current loan.
3. They will request that they payoff your bills. They do this because they fear that you can keep the cash and have 2-5 balances and never pay it back. So if they want to let them pay it off as long as they post the accounts they pay off under your name such as a car payoff. Make sure they have the title under your name and not the bank.
4. Taxes: Make sure that your property is current with tax payments (Property Tax) because the bank would not like you to have a lean placed on your house especially if you default on the loan. If you were to have a balance tell the bank when you apply that you have to pay back taxes with the loan you want to take out now.
If you have any other questions feel free to contact me. Good Luck.
Ok, it seems like you have quite a few questions here.
1) ARMs are not evil despite what everyone is saying. People fear something they don't understand. I'm not saying to get an ARM, but you should know what it is and how it works to know if it is for you or not. ARM stands for Adjustable Rate Mortgage. This means that after the initial 5 or 7 years (depending on what type of ARM you get), the interest rate begins fluctuating.
For example, a 5 year ARM is fixed for the 1st 5 years, then it begins fluctuating with the market and economy. Now, why would anyone get an ARM? Well, you get a lower interest rate during the initial fixed period if you get an ARM. So, if you do not plan on staying in your house for longer than 5 or 7 years (depending on your ARM type), then you should get an ARM. Why? Because if you're planning on moving within the fixed period, then you can enjoy low interest rates for the 5 years, then sell the house, so you wouldn't have to worry about the fluctuating interest rates anyway.
2) ARMs do NOT always adjust up, currently they have been adjusting down for some time, making homeowners with ARMs have even lower interest rates than what they had with the initial fixed period.
3) However, if you plan on staying in your home for a long time, and you don't like having to watch the market for how interest rates are moving — up or down, then you should get a fixed loan (there are 2 types: 15 year fixed or 30 year fixed).
4) As for down payment, the lowest down payment amount you can pay is 3.5% for an FHA loan. FHA loans come in 30-year fixed as well. FHA is a loan that is insured by the Federal Housing Administration, which makes otherwise riskier borrowers safer to lenders as the goverment is insuring you to the lenders — to guarentee the loan will be paid back.
5) FHA loans are also good with lower credit scores as they are designed to be more flexible. Also the tax credit is extended until April 2010. Lastly, remember the tax credit is only 10% of the house you are buying — up to $8,000.
Hope this helps. For more information on how loans work, check out the sources section.
Congratulations on buying your first home! Owning a home is a good, if major investment. The key to it value is equity. In terms of home ownership the equity in your home is the difference between the market value of your home and the outstanding loans on your home. For example, let us say you bought your house a year ago for $200,000. Let's say you made a down payment of $40,000 and got a mortgage for the remaining $160,000. Now, during the last year lets say that real estate prices in your neighborhood rose 10%, plus through your monthly mortgage payments you have reduced your home loan by $6,0000. So lets put this all together; due to the rise in real estate prices your house is worth $220,000 (remember they rose in your neighborhood by 10%,) and outstanding mortgage is $154,000 (you have been paying it off,) so subtract the mortgage from your market value (220,000 – 154,000 = 64,000/
so your equity (answer to #1 – the monetary value of difference between the market value of you home and outstanding debt on the home) is $64,000. This equity is what you can use to get a second mortgage. Sometimes people do this in order to undertake major improvements to their home. For example, if you wanted to add a solar heating system to your home, this could cost about $50,000. Very few people have $50,000 sitting in the bank, but as we noted above you have $64,000 in equity in your (imaginary) home. You can use this equity to go to a bank and get a second mortgage for $50,000 (this is called a loan against your equity.)
Now once you sign a loan agreement, you are borrowing money against the value of your home and paying interest on that money. But interest rates change. So perhaps 3 years from now, interest rates have dropped. Your original mortgage was (we will pretend) at 6.5% and your (imaginary) second mortgage (that you used to install solar heating) was at 7%. But over these last three years interest rates have dropped (because we elected a Democratic president who rebalanced the budget and began to pare down the National Debt,) so now home loans are offered at 6%. You go to the bank and "refinance" your house by getting a new loan (at a lower interest rate) that allows you to pay off your two older loans. Sometimes, when owners refinance they also "take out" equity by increasing their mortgage, ( remember on your "imaginary" house you added your solar heating which adds value, you continued to pay off your mortgage, which decreases your debt, and, perhaps, real estate values continued to rise in your neighborhood, so when you come to refinance, the market value of house may have grown to $290,000 when you refinanced, so you may decide to have a $200,000 mortgage on your home.)
so in conclusion:
1) equity is the difference between the market value of your property and the outstanding debts on your property.
2) homestead is the legal term (from the old Homestead Act of 1862) for your title to your property.
3) refinancing is when you want to get a new loan (usually at better terms) on your property in order to: a) retire older loans at higher interest; b) "take out" some of the equity you have built in your home by paying off your loan and having property prices rise.
Here is a site for California (I don't know where you are) for preparing your homestead declaration:
https://www.1stoplegalforms.com/FormLs/LFL_0101.asp
And finally, yes it is normal for loan papers to be "sold" at discounted prices among financial institutions (this is exactly how a lot of giant finance house like Lehman Brothers or Goldman Sachs started out buying and selling loan papers.) This sale cannot change the terms of your loan, only the final receiver of the loan money. There is an especially big market in second mortgage papers. Companies like Fannie Mae make a lot of their money in this trade. Anyway, sorry for being so long, I hope this helps you a little, one word of advice – for your own economic interest, do not totally mortgage your property (always keep a margin of equity) this leaves you some "emergency" collateral, and helps ensure your title to the property. Good luck.
The homestead act does not change regardless of whether you refinance- I work in the mortgage business & just refinanced my home in Sept. to a lower rate. I didn't want cash out- I just wanted a lower payment which I got- rates are in the 5's now for FHA- probably worth you doing. Just get the #s & make the decision then- usually if you can save 1% it's worth doing.
Your mortgage payment is wayt above what you can pay for a home, so you should sell the house. You need to know up front though, that by filing for a BK, you have just put yourself into a higher risk category for lenders – which would mean higher interest rates and probably not a 100% loan, right away.
If you filed the BK by yourself (without the husband) that is going to help him to get a mortgage by himself – he is the one working anyways, and you can always be added to the title even if not on the mortgage.
You don't need to necessarily wait until May to sell. Some Prepayment penalties are "hard" and some are "soft". Soft means that if you sell rather than refinance, the penalty may be waived – check your paperwork from the closing. If it is "hard", then waiting until it expires usually is the best option, but you can start selling before May, just not close on the escrow until after the PPP ends in that case.
You should definately start with a mortgage professional, this will give you an idea of how you'll need to structure a new home loan and what exactly you will likely be able to afford. Then, take that info to a Realtor who can assist in both selling your home, and in buying a new one. For the double transaction, you may be able to negotiate a smaller fee for the sale of your home – say 5% rather than 6%, but this would depend on state, specific market, and company that you find.
Best of luck. If you need some general info please feel free to use my website at http://www.fnmshome.com
Even though she doesn't make any payments on the loan, your loan is included in her debt ratios and she will be responsible if you default on the payments. Also if you miss any payments, those will be reported on her credit report as well as yours.
The only thing I can suggest is that you and your husband build up your credit so that you can refinance your home without her as a cosigner. You should do as much as humanly possible because she is only in that situation because of you and your husband.
Best bet is to hound the refinance company for an answer before committing to withdrawal of the equity line, read the documents signed for the refinance process,
In general if you have a first and second lien, meaning taking out the equity line, the first legally can not change the terms i.e. refinance without approval of the second lien holder, well they can but must change lines in the right to property i.e. equity becomes senior and first is now junior, in the old days with housing prices increasing it was common for second to waive right, in these times who knows but tapping equity line could crush your refinance, or it may not
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