When to Refinance

Refinances are a large part of the current housing market. In fact, the market saw a 2% increase in refinances over the last year which was the highest reported since 2015. Homeowners are choosing to refinance for a number of reasons and new streamlined refinance options make the loan process easier than ever.

There are two types of refinance options: rate and term and cash-out. Rate and term refinances are when a homeowner refinances their existing mortgage into a better rate and term. People usually do this if rates have gone down since their initial purchase or if they want to lower their payments by refinancing the remaining loan amount into different terms. Cash-out refinances are when owners refinance their home mortgage and borrow cash against the equity built so far. People often choose to do this when they want to make home renovations or pay off outstanding debt like medical bills or student loans. Certain home renovations like energy efficiency improvements and handicap access additions are actually tax-deductible in many cases.

There is no penalty for refinancing a mortgage, and you don’t even have to use the same lender as your first mortgage. When a mortgage is refinanced, the existing mortgage is wiped clean and a completely new loan is created. There may be some restrictions as to what type of refinance you can do. If your first mortgage was a USDA loan, for example, you have to refinance into USDA terms again. A refinance will not be approved unless there is a net tangible benefit for you, meaning you have to save a certain amount on your monthly mortgage payment to refinance your loan.

In most cases, refinances are much easier and quicker than first mortgage loans. The underwriting standards are more lenient and certain previous requirements such as appraisals and credit checks are not always necessary to refinance. The same income requirements aren’t always required, either.

If you’re thinking about refinancing your mortgage, you should ask yourself a few questions before proceeding: 

Will I benefit financially from refinancing my mortgage?
Have I built enough equity to justify a cash-out refinance?
Do I have the reserves to cover any required closing costs and fees?
Am I willing to enter a new loan contract with different terms?

If you’ve answered ‘yes’ to all the applicable questions and still wish to explore refinancing options, you should seek a lender to discuss programs. Depending on your original loan, there may be restrictions.

FHA Streamline Refinances

This program is for homeowners with existing FHA mortgages. Although FHA loans can be refinanced into Conventional terms, many homeowners choose the FHA Streamline program for its benefits and ease of completion. The FHA Streamline Refinance program doesn’t require the documentation typically required for FHA loans including income and employment verification, bank statements, credit verification, and home appraisals. Homeowners can also reduce their mortgage insurance premiums with this loan program.

With the streamlined product being the easiest way to refinance an FHA-insured loan, homeowners can take advantage of today’s low mortgage rates without all the hassle of a traditional mortgage loan.

Since the FHA streamline refinance program doesn’t require a home appraisal, a homeowner can refinance their mortgage even if they are underwater. In fact, the FHA program encourages underwater homeowners to refinance, even if they owe twice what their home is worth.

Although traditional credit, appraisal, and income verification are not necessary for the FHA streamline refinance, there are a few requirements. A perfect 90-day repayment history for all financial obligations is necessary. There must also be no late mortgage payments in the last 12 months.

FHA loans are versatile because they can be refinanced into Conventional terms once enough equity has been established. Many homeowners choose to do this to eliminate mortgage insurance which is required for the life of all FHA loans. Express your reasons for refinancing with your mortgage professional to see which program is right for you.

USDA Refinance

If your original mortgage was a USDA Rural Development loan, you must refinance into USDA terms. There are three types of USDA refinances: USDA Streamlined-Assist refinance, Standard streamline refinance, and USDA non-streamline refinance.

The most popular of the options is the USDA Streamlined-Assist refinance. It requires no credit check, appraisal, and income qualification. Like FHA refinances, underwater homes are also eligible.

Despite generally following the same rules, the standard streamline refinance isn’t as flexible as the streamlined-assist program, but many homeowners still choose it because there is no requirement to drop the mortgage payment by $50 and existing borrowers can be removed from the loan. If the homeowners are divorcing, a borrowing ex-spouse can easily be removed from the loan through a refinance. Borrowers who choose this USDA refinance route are subject to proving income and getting debt-to-income standards.

The non-streamline refinance option is similar to the non-streamline programs offered through Fannie Mae and Freddie Mac. It requires an appraisal and borrowers must meet credit and income guidelines applicable to USDA home purchase loans. A homeowner might choose this option to avoid the mandatory $50 payment decrease required of streamline programs. Also, the non-streamline refinance option allows closing costs to be rolled into the new loan which isn’t the case for the streamlined loans.

Homeowners choose to refinance their mortgage loans for a number of reasons including reducing monthly payments and borrowing cash to take care of expenses. Refinancing a mortgage today is easier than ever. There are a multitude of options on the market that make it easy and stress-free to refinance a loan. Many of the burdensome initial requirements of a mortgage aren’t required for refinances, so even homeowners who are underwater on their mortgage are eligible to refinance.

If you’re thinking about refinancing your mortgage and want to know which program is best for you or whether or not you qualify, speak to an accredited mortgage lender today.


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