More on the subject of refinancing
Continuation from last week’s question concerning “Refinancing, qualifying-not, etc.”
Weak personal finances. You must have proof of your income, such as pay stubs or W-2 forms (or two years’ worth of personal or business tax returns if you are self employed or Social Security, pension and investment income statements if you are retired). Also, your debt burden, mortgage payments included, must not exceed 40 percent of your gross pretax income, and some lenders might shy away if your debt burden exceeds 33 percent of gross income. You must have savings equal to at leastthree months’ worth of mortgage payments. And your credit score must be at least 680 out of 850. (Some lenders insist on a score above 720 for their best rates.)
If a borrower seems like an extremely low risk in most ways, some lenders might bend these guidelines. For example, a home owner with a 44 percent debt burden might qualify for a loan if he/she has an investment portfolio worth much more than their debts.
Where to go
If you are the sort of homeowner who even lenders with the most stringent guidelines are likely to approve (credit score above 720, 20 percent or more in home equity, a solid job that you have had for years.. and lots of savings), consider seeking finance through banks and credit unions.
These lenders often do not pay their mortgage employees a commission, so they may provide plain-vanilla mortgages somewhat cheaper than mortgage brokers, who are paid commissions.
If you fall short one or more of the criteria or you don’t have the time to sit down with several banks or credit unions to discuss terms, a mortgage broker probable is the best choice. Brokers usually have access to a wider range of mortgages and can shop around to find the best terms.
Another advantage to working with/through a broker: If rates drop between the day your broker locks in your rate and the day your loan is closed, you can insist that the broker find you a mortgage offering better terms.
Brokers don’t like doing this (my bad) – it angers the lenders they are working with- but if rates have fallen by more than one-quarter point and the closing date is still at least one week away, they usually will agree to do it without any additional fees.
In contrast, if you are working directly with a bank, you usually need a “float-down agreement,” which typically costs about $500+, to get a lower rate after you have asked the bank to lock in a rate. Without a float-down, the only to get the lower rate would be to forfeit your application fees and begin the mortgage application process from the scratch (of which I strongly advise against) with another lender.
Does it pay?
Refinancing means paying a new round of closing costs, usually totaling several thousand dollars.
(Why the paragraph above? I received an e-mail for my opinion and THEN the explanation.) Few lenders offer no-or low-closing-cost mortgages these days, but if you are a very great/attractive borrower or you do a lot of business with a bank or credit union and threaten to take that business elsewhere, you might be able to negotiate.
It often is worth refinancing even with closings costs when:
– Your current fixed rate is at least one-half percentage point above the new rate you can get.
– You expect to remain in your current home for at least two years.
– If your current mortgage is an adjustable-rate mortgage (ARM), it might be worth refinancing to lock in a fixed rate even if your current rate is reasonable.
Refinancing an ARM makes less sense if the ARM is still many years from its reset date – you know it will reset to an affordable rate- or you do not expect to stay in the home much beyond the reset date.
For a more precise analysis of whether refinancing could save you money, speak to a mortgage lender or use an online mortgage refinancing calculator.
EXAMPLE: Finance.yahoo.com, Select “Real Estate” from the “Personal Finance” menu, then “Should I refinance my home mortgage?”
There is the FHA alternative next week. I hope everyone enjoyed Veterans Day, especially us Veterans.
Have a real estate question? Write, call, fax or e-mail:
Bob Jeffries, Realtor,
Century 21 Birchwood Realty Inc.
4040 Del Prado Blvd., Cape Coral, FL
239-549-5724 Office, 239-542-7760 Fax