How to Prepare for Your Refinance

With 30-year interest rates below 5 percent, and 15-year interest rates between 4 percent and 4.5 percent, it's time to think seriously about refinancing your mortgage.

Planning ahead will help you Position Yourself For Success.  Before you call your preferred mortgage lender and fill out a loan application, there are eight things you should do:

1. Know the interest rate you have on your current loan. When interest rates drop it's natural to start think, get a lower rate before it's too late. But too many times, homeowners are focused solely on the new interest rate instead of how much they'll save by refinancing. Only refinancing if it's going to save you money.

2. Find out how much your home is really worth. There's no way to sugarcoat it: Home values have gone down around the area an average of about 10-20 percent in the past year. It's vital to assess whether your home still has any equity (the difference between what you owe and what the home is worth) or if you are "underwater" with your mortgage (meaning that you owe more to your lender than the property is worth). Whether you have equity will determine what kind of refinance loan you qualify for.

3. If you're underwater with your mortgage, assess how far underwater. While federal requirements have changed with regard to refinancing loans owned or serviced by Fannie Mae, Freddie Mac or FHA, if your loan is more than 105 percent of the value of the property, you may not be able to refinance without bringing cash to the table. (You may still be eligible for a loan modification, however.)

4. Get a copy of your credit history and credit score. Since the credit crisis began, lenders have raised the credit scores required to get approved for the best loan programs and best interest rates. The best place to go for a copy of your credit history and credit score is AnnualCreditReport.com. It's the only place where the three credit reporting bureaus provide a free copy of your credit history each year, plus you can pay $7.95 for a copy of your credit score. Choose the Equifax credit score, since it's the one closest to the score used by most lenders. (You can also go to MyFico.com, and purchase your credit history and FICO score for $15.95. Also, you may find the Credit Repair Tips on www.minocquamortgage.com helpful if you need to raise your scores.)

5. Shop around for a lender, ask them questions, lots of questions. You want a knowledgeable loan officer that places your best interest first. Getting a loan takes a little more planning and effort than it used to, as lenders have jacked up the fees they charge to process the loan. Your best bet is to talk to a national lender, a credit union (if you belong to one or can join one) and a local mortgage broker (call your real estate agent if you don't know one and ask for several recommendations).

6. If you have a second mortgage or HELOC and do not wish to pay this loan off, find out if your lender will subordinate to your first lender. That will allow you to refinance your first mortgage, while leaving your second loan in place. Many second lenders will not agree to this, and if yours doesn't, you may not be able to refinance at all unless you pay off the second loan.

7. Focus on the big picture, not just the interest rate. While the interest rate you'd get is important, it's also important to calculate how much you'd pay in fees, and how long it will take to pay yourself back the cost of the refinance with your monthly savings. For example, if you're going to save only $50 per month, and it costs you $5,000 to refinance, it'll take you 100 months -- or more than eight years -- to pay back the cost of doing the loan. You won't start saving until well into the eighth year of paying down the mortgage. So, unless you're cutting the term of the mortgage significantly (going from a 30-year to a 15-year), or you're able to pay off the costs in a relatively short period of time (say, 18 - 24 months), it may not pay to refinance.

8. Get your paperwork together ahead of time. Before the housing crisis, you could almost do a refinance over the phone. In fact, you could call the loan officer you worked with and put in your order for a refinance. You could do a no-cost refinance without providing much in the way of proof of earnings, or account statements or copies of tax returns. Today, you've got to have your paperwork in order before you can refinance. Gather your W-2, a current paycheck, copies of your last two federal, copies of your bank statements, retirement accounts, and other assets. For a more complete list of documents your lender will need can be found on www.LakelandHomeOwnershipCenter.com .Then you'll be ready  to call your lender.

If you need a little help getting started, give us a call. Comments and questions are encouraged. Contact us at marcia@minocquamortgage.com or on the web at www.minocquamortgage.com

Posted by Minocqua Mortgage Blog at 4/23/2009 7:04 AM
Categories: Credit Scores
Tags: www.mortgageminocqua.com Position Yourself For Success Credit Score
 

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