“I’m afraid I won’t qualify.”
While there are specific eligibility requirements, many homeowners do qualify for a refinance. Even those who haven’t built up a lot of equity in their homes or are struggling to get their credit back on track might qualify. The guidelines have now loosened up that homeowners who thought they couldn’t refinance before because of credit or employment issues just need to approach a lender to know the process. Don’t let your ‘low financial self-esteem’ stop you before you even get started.
For an instance, government programs such as the Home Affordable Refinancing Program or HARP can help you refinance as long as Fannie Mae or Freddie Mac own your loan; it was originated on or before May 31, 2009, and your current loan-to-value ratio is greater than 80%.
“There’s no reason for me to refinance.”
Believe it or not, there are many reasons for you to refinance. The primary reason for many homeowners is to have a lower mortgage rate, which leads to lower monthly payments. It’s also applicable if you want to shorten the life of your loan and save money in interest paid over the life of the loan. Refinancing is also possible for those who have an adjustable-rate mortgage (ARM) and now want to have a low fixed-rate. Homeowners who are planning to stay in their homes for a while can also refinance to fund home repairs and other major purchases.
“It will take too much time and effort.”
Sometimes just the thought of providing the paperwork can be the most daunting part of any real estate transaction. Refinancing is no exception. Many homeowners may find it a burden to provide the documents needed, including pay stubs, tax returns and proof of income (W-2 forms and/or 1099s), credit report, statement of assets and debts, and even title insurance. But if you will think about it, you can easily access most of these requirements anyway if you’ve safely stored them for verification.
If you really cannot locate your copies of those documents and/or you’ve lost them at some point, you can still find that refinancing is worth the hassle. Streamlined refinancing is being offered for homeowners who have government-backed loans such as the FHA, VA or USDA loans. It’s an option that can save them time and money by expediting the refinance process. If you apply for a streamline refinance to simply reduce your interest rate, there may not be a need for a new appraisal or an income verification.
Just remember that while it might not be the case for most conventional loans, the extra time and paperwork can be worth it when you eventually see your monthly payments come down and finally save more cash.
“I can’t refinance with another lender.”
Refinancing is a great opportunity for you to search and compare lenders and mortgage rates so it’s a great opportunity to get a better deal with a new lender. It’s also important to shop around and compare loan options from different types of lenders, such as from a local bank, an online lender, or a mortgage banker. You can also venture out of your town or county when seeking lenders.
“Shop around for rates, and don’t rely on banks in your area,” said Bryan Marsden, editorial coordinator of FatWallet.com.
“I’m waiting for mortgage rates to drop.”
This is a common misconception that most homeowners have about refinancing. Yes, refinancing when mortgage rates are low can be a very smart decision. And yet, there’s no way to know when rates will go lower so it’s quite a gamble to wait every day for it to drop. Opt to refinance depending on your situation, your goals, and whether it makes sense for you.
“I’ve missed my chance to refinance.”
And speaking of waiting for the “right” time, many homeowners think they might have missed their chance to refinance because of rising interest rates. However, experts are saying otherwise. As long as you’re sure on the costs associated with refinancing and confirm that it will lower your monthly payments, it’ll be an appropriate choice for you regardless.
If you think you are moving soon, a refinance isn’t a smart move because you may not recoup the closing costs you spent to save cash on your mortgage payment. Experts recommend that you look for the break-even point of the loan—your total closing costs divided by monthly savings—where you’ll start saving money in your mortgage payments.
Refinancing may sound complex and overwhelming, but once you know what you’re getting into, you’ll understand that it’s a great opportunity for you to save some serious cash before it’s too late. Remember to choose the right refinancing product depending on your time frame, goals, and plans.