Never too early to refi three

Would you like to pay off your debt from a student loan or credit card at a fraction of the interest you’re currently paying? Do you dream of starting your own business with the freedom to do things your own way reaping the rewards of success without the cost and red tape of a business loan? With rates still at historic lows, you get a better mortgage rate today than when you bought your home; higher credit scores may help you qualify for a lower rate.

These are just a few of the reasons to consider refinancing your current mortgage. When you refinance, your current mortgage is replaced with one that better fits your financial needs today and in the future. You can refinance to lower your monthly mortgage payment, save money with a lower interest rate, and take out cash from your equity for many reasons, including paying off high-interest debt or starting a business.

One of the best reasons to refinance is to stop the monthly cost of paying the mortgage insurance premiums required by FHA. Unlike private mortgage insurance, FHA mortgage insurance doesn’t go away when you build more than 20-percent equity in your home. You eliminate it only by selling or refinancing.

Other reasons for refinancing might include home remodeling or repair; replacing an adjustable-rate mortgage with a fixed-rate mortgage to avoid a rate reset; or to pay unexpected expenses, such as emergency medical or legal costs.

For additional information or to get the refinancing process started, call today and speak to a loanDepot Licensed Lending Officer.

Young owners are building equity

Many homeowners who refinance are middle-aged and have owned their homes for some time. But there’s no age or ownership term required to refinance. All you need is enough equity in your home, good credit, and manageable debt.

Many young buyers who purchased starter homes prior to the housing recovery are doing quite well. Smaller starter homes that were popular with first-time buyers have appreciated at a rate of 7.5 percent per year for the past five years. Meanwhile, homes larger than 2,400 square feet only inched up 3.8 percent a year. Many owners may not realize how well they’re doing and underestimate the equity in their home.

How much equity do you have?

Equity is the difference between the value of your home and the amount you owe on your mortgage. If your home is worth $200,000 and you owe $150,000 on your mortgage, your equity is $50,000 (25 percent of your home’s value). Equity grows two ways: by reducing the amount of principal owed or through appreciation built up in your home’s value.

To find out how much you owe on your loan, look at your most recent mortgage statement. Fixed-rate mortgages are structured so that, during the first half of the loan term, most of the borrower’s payments go toward paying interest. A new homeowner making minimum monthly payments probably has not significantly reduced the principal. 

You can get a ballpark estimate of what your property is worth by visiting any number of homeselling websites. Keep in mind, the valuation of homes on internet calculators can differ from a valuation by a licensed appraiser by tens of thousands of dollars, because online calculators can’t inspect a home and are only as accurate as the quality of their pricing data. Your licensed lending officer can pull comps from your area and – providing your home is in decent shape – get you an idea of what it’s worth by examining similar homes recently sold in the region.

Once you decide to go forward with the loan process, your home will be appraised to give it an exact value. The difference between its appraised value and the total you owe is your equity.

Requirements to refinance

To refinance, lenders prefer:

  • At least 20-percent equity in the home. 
  • Good credit. The average credit scores for refinancing loans today range from 647 for an FHA loan to 729 for a conventional loan.
  • Manageable debt. Average debt-to-income ratios to refinance range from 29 percent for an FHA loan down to 24 percent for a conventional loan. Your debt-to-income ratio is your total monthly debt obligations divided by your gross monthly income.

Steps to refinance

  1. Decide what you want to achieve by refinancing. Your goals will help your lender design the right program for you.
  2. Meet with your loan officer to review goals, home value, current credit status, and debt picture. Provide documentation to substantiate income and debts.
  3. Once you apply, your lender will provide you “know before you owe” information on the loan amount, mortgage rate, and closing and administrative expenses. Your lender will roll closing costs into the principal of your loan.
  4. Complete an application and submit all documents requested by your lender.
  5. When the appraisal is complete, terms will be finalized and a closing will be scheduled.

Above all, be smart

During the housing boom a decade ago, some homeowners took out too much equity when it seemed as though their homes would appreciate forever. When the bust came, and home values dropped below the principal millions owed on their mortgages, many lost their homes because they had no equity cushion in which to protect them in the event of a job loss, major repair, or other costly misfortune. It’s a good idea to have adequate equity to protect your family against a housing devaluation and to keep a buffer for emergencies.

You’re never too young to refinance. In fact, there are no age limits for homeowners who want to take advantage of lowering your interest rate and monthly payment or eliminating PMI.

An examination of your options is definitely worth the time. Speak with a Licensed Lending Officer at loanDepot today and get a clearer picture of all the refinancing possibilities.

Published Aug. 23, 2017


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