How Refinancing Can Help... Today!

With mortgage rates near rock bottom, it's a good time to consider refinancing your home. But how?
POSTED ON:
May 22, 2020
UPDATED ON:
September 29, 2020
Category:
Financing

Have you thought of refinancing your home lately, but don’t know where to start or what’s involved? Interest rates are at all-time lows… We're sure you’re seeing it mentioned on TV, hearing it on the radio, or from a co-worker! If you’re interested in knowing more, keep reading.

What is refinancing and how long does the process take?

Experian defines refinancing as the process of “taking out a new loan to pay off your original mortgage loan”*… And it’s a fantastic time/way to lower your interest rate or reduce the term of your home loans. Given the current economic condition, it may even put money in your bank for security or pay for the credit cards used on well-deserved items.

Given the current flood of home loans, it could take up to 45 days. We find that with a very clean file that 20 days is plenty, but let’s set an expectation of 45 days.

How does the refinance process work?

Submitting a complete file consists of the following documents:

  • Income documentation of the borrowers
  • Proof of assets (money) to close, or for reserves
  • Tri-Merge Credit report, to show your overall financial health
  • Collateral, or the condition and value of the home being refinanced 

Income Documentation

  • Pay stubs, if you’re a full-time or salaried employee
  • Two (2) years of 1040 tax returns, if you’re a part-time or self-employed

Required documentation will be a bit different for each loan file, based on your situation. Some loans allow asset depletion – a large savings or investment account that you regularly withdraw from. Using this loan type, the account’s balance needs to show that your regular withdrawals can continue for 3 or more years. Getting too technical? We understand, and we’re here to help. Contact us and we’ll work together towards an equitable solution!

Proof of Assets

Asset documentation is provided to show the ability to close the loan and/or show reserves that may be required. This is made up of 60 days of bank statements, retirement accounts, or investment accounts. Cash on hand is rarely allowed, but always a good idea for the family. 

(What would you do with extra cash on hand? Source: Pexels)

Reserves are rarely needed to show on a refinance of a primary residents. You would need to show the amount required to close the loan if those expenses were not added back into a loan, but that’s your choice. However, when refinancing an investment property or second home, you will often need to provide reserves. Don’t move money between accounts prior to providing your bank statements, as you will be required to provide a paper trail to prove the deposits came from an acceptable source. This is unwarranted work that you do not need.

Credit Score

Creditworthiness is ALWAYS a factor. Generally, a credit score of 720 or better will get you the best interest rate. 680 is the next level, then 640. If your credit score is below 640, there may be limitations on loan to value (LTV), property type, and limits on the cash amount taken out. Not sure how to manage/check your credit score? We discussed credit scores in length on a recent blog. If this is a concern, please feel free to reach out to us to see what we can do.  

Collateral/Appraisal

This is where the investor’s Appraisal Management Company (AMC) visits your home to do an independent evaluation of your property. The appraiser will come to your residence to measure rooms, take photos of the home’s interior and exterior conditions, and take notes of the fantastic kitchen you had re-done last year or the deferred maintenance of the paint on the eves…

Yes, the appraiser reports that and everything else observed during the one short trip. Most of the work is done through technology resources, where comparable properties are evaluated against yours. In the end, they report the property’s condition and value to the lender. The reported value is then measured against the loan amount we submitted which makes up your LTV.

All loans have a limit on LTV. Cash-out generally is 80% unless you’re a veteran and do a VA loan. But again - there are lots of options, different loan types, terms… And we can discuss all of the possibilities available. 

Side notes on Appraisals:

  • Be sure there are carbon monoxide (CO) detectors in your home! The California Carbon Monoxide Law took effect in July 1, 2011*, which requires CO detectors to be outside of each separate dwelling unit, sleeping area, and near a bedroom. There must be at least one (1) detector on each level of a dwelling, including a basement. Be sure those are installed.
  • Also, make sure smoke detectors are installed.California Residential Fire Code R314 requires smoke detectors to be installed in each sleeping area, outside its separate sleeping area, and in the immediate vicinity of bedrooms on each floor including basements and habitable attics.
  • You can often buy these detectors in a combo set that is battery operated and can be simply stuck to the wall or ceiling. Be sure to read the packaging for proper mounting and placement!

So we have covered a lot of information about refinancing your home… All of which are important aspects of the process. Try not to feel overwhelmed - simply make the choice and then let’s chat about it. You may find plenty of alternatives that suit you better or that this maybe your best option! With refinancing, you can most likely reduce your payment, or the term, or both (!) while potentially taking money out for security or keep up on payment. In any case, it costs absolutely nothing to chat about it and see what your options are. Oh, by the way, congratulations on being a homeowner, it’s often one of the smartest and largest financial decisions a person makes in a lifetime.

Rather than refinancing, what if I wanted to sell instead?

With today’s low rates, it’s an incredible time to refinance. But interest rates don’t only affect refinancing situations… They also affect new mortgages/loans! With that being said, it’s also a great time to sell your home. If you're thinking of moving up or away, here are the facts…

Inventory is at an all-time low. This means there aren't enough houses for people who are looking to buy. Pair that with today’s low interest rates – buyers can afford more house! It’s a win-win situation for you (seller) and the buyer. Buyers can afford your home and you’re able to upgrade to your next home, while you both take advantage of today’s low interest rates!

See how low the rates are and how competitive the industry is? If you’re thinking of refinancing, selling, OR buying, this is an absolutely great time.

* Sources, in order of appearance:

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