- 1 ASK A FINANCIAL PLANNER: 'Should I refinance my home?'
- 2 Tap into Home Equity with an FHA Cash Out Refinance [Updated for 2017]
- 3 how many times can i refinance my home
ASK A FINANCIAL PLANNER: 'Should I refinance my home?'
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Certified financial planner Sophia Bera answers:
I bought my house about a year and a half ago, and since then interest rates have declined by about half a percent.
If I refinance now, I would save about $200 per month on my mortgage, but I know there are some costs that are associated with closing on the new mortgage.
Plus, getting a new 30-year, fixed-rate mortgage after paying off about a year and a half of my current mortgage would mean an additional year and a half of payments, which leads toВ more interest payments that I would have to make over the life of the new mortgage.В
What should I take into consideration when deciding whether to refinance?
Congrats on your home purchase! There are many things to consider when you are refinancing:
- How much longer are you planning on living in the home?
- How much are the closing costs?
- What is the difference in the interest rates?
- How long before you would break even?
If you plan on selling the home in a few years, it's probably not worth it to refinance. For example, if the closing costs to refinance would be $3,000 and you'll save $200 a month on the mortgage, then it would take 15 months in order to break even.
Closing costs can really vary by lender, so be sure to shop around. I highly recommend checking out credit unions as well, because I've found that they have some of the most attractive refi rates available.
I think a good rule of thumb is that if you can lower your interest rate by at least .75% then it's worth it to look into refinancing. It's even better when you can lower your interest rate AND shorten the terms of your mortgage. For example, say you took out a mortgage at 4.5% when you bought your home fiveВ years ago and now you can refinance to a 3.75% 15-year loan, thus cutting another 10 years off of the mortgage saving yourself thousands of dollars in interest over the life of the loan.
Flickr / chrstphre г‹› campbell
If your credit score has gone up significantly between the time you bought your home and now, you might be able to qualify for a much better interest rate when you refinance, which could be a compelling reason to refinance. Just make sure you have enough equity in your home because you don't want to get stuck paying PMI if you're not paying it right now.
If you're currently paying PMI, another reason to refinance would be if the equity in your home has gone up significantly and you're able to refinance and get rid of your PMI. This would help save you even more on your monthly mortgage. You generally need at least 20% equity in your home to avoid PMI.
If you can refinance for only a few thousand dollars and you're planning on living in your home for at least threeВ more years, I would say that moving forward with the refinance would be a smart idea.
However, now that you're saving $200 a month on your mortgage, make sure you put that $200 to good use. I recommend using that money to pay down debt, build up savings, or add it to your retirement accounts. Don't let that $200 in monthly savings get swept away in lifestyle creep.
This post is part of a continuing series that answers all of your questions related to personal finance. Have your own question?В Email yourmoney[at]businessinsider[dot]com.
Sophia Bera, CFPВ® is the Founder of Gen Y Planning and has been quoted in The New York Times, Forbes, Business Insider, AOL, The Wall Street Journal, and Money Magazine. SheВ tweets, travels, and loves helping millennials manage their money more effectively. Curious? Sign up for the free Gen Y Planning Newsletter.
Tap into Home Equity with an FHA Cash Out Refinance [Updated for 2017]
There are two primary FHA refinance loan programs; the streamline refinance and the FHA cash out refinance. The FHA streamline refinance program refinances a mortgage to a lower rate with little documentation. But it doesn’t allow for any cash to the borrower.
The FHA cash out loan provides cash-in-hand to the borrower. You open a loan with a bigger balance than what you currently owe, and the excess proceeds go to you. Because it’s a riskier product for lenders, the FHA cash out loan requires more documentation than does an FHA streamline.
As the name implies, the greatest benefit of an FHA cash out refinance is to put extra cash in the borrower’s pocket. These funds can be used for any purpose such as
- Home improvement
- Education costs
- Buying a new car or paying off a car loan
- Consolidating credit card balances
- Creating a personal cash cushion or to invest.
For example, if you owe $100,000 on your home you could open an FHA cash out loan for $150,000, assuming your home has adequate equity and you qualify for the loan. If closing costs were $5,000, you could end up with an extra $45,000 in your pocket.
Secondary to receiving cash out, these loans may be used to simultaneously lower the rate and/or change the loan term, i.e. from a 30 year fixed to a 15 year. You could even change an adjustable rate mortgage to a steady fixed rate loan.
Compared to conventional cash out loans, FHA cash out loans have relaxed guidelines, allowing borrowers with lower credit scores and higher debt-to-income ratios to qualify.
The minimum credit score for FHA loans is 500, assuming a 10% down payment. FHA cash out refinances require 15% (the same as a 15% down payment). So, in theory, you need a 500 credit score to qualify.
However, most lenders will require a much higher credit score since cash out financing is more carefully approved than even a home purchase. So, you’ll probably need a minimum score between 600 and 660 to qualify for FHA cash out.
FHA cash out maximum loan-to-value is 85% of the home’s current value (a new appraisal is required). Compare that with a maximum conventional cash out LTV of 80%. The higher limit is why many homeowners choose FHA instead of conventional. Here’s an example:
- Current value: $250,000
- Existing loan: $187,500
- Maximum conventional cash out loan: $200,000 (about $10,000 cash to the homeowner after paying off the existing loan and closing costs)
- Maximum FHA cash out loan: $212,500 (about $21,000 to the homeowner after loan payoff/closing costs)
The extra $11,000 in this case might be enough to make the homeowner choose the FHA cash out option.
Compare Conventional Cash Out and FHA Cash Out Refinances
FHA cash out loans also have their disadvantages. All FHA loans require both an upfront mortgage insurance premium and a monthly insurance premium. The upfront mortgage insurance premium is 1.75% of the loan amount. For a $200,000 loan, that’s $3,500 in additional principal tacked onto your loan amount.
Additionally, FHA requires monthly mortgage which would be 0.80% of the loan amount per year on a loan with an 85% loan-to-value. That’s $67 per month for every $100,000 borrowed. Also, this monthly mortgage insurance is now payable for 11 years rather than a mimumum of 5 years, after FHA mortgage insurance changes implemented on June 3, 2013.
Because of these extra costs, you should consider a conventional cash out refinance if your home has significant equity, as conventional loans at or below 80% loan-to-value do not require upfront or monthly mortgage insurance.
The FHA cash out refinance requires sufficient income to qualify for the new loan. Borrowers will verify their income with at least two most recent paycheck stubs from their employer showing current and year to date earnings, W2 forms from the last two years and in many instances, the two most recent filed federal income tax returns.
Asset verification in the form of bank and investment statements are typically not a requirement for an FHA cash out refinance loan as no funds are needed in order to close the transaction. However, this does not mean the FHA lender cannot request bank statements as part of their internal underwriting guidelines.
The FHA lender evaluating an FHA cash out loan application will require a brand new appraisal report on the subject property. The value on the appraisal is used to determine the maximum allowable loan amount for an FHA cash out loan. Currently, the maximum loan amount for an FHA cash out refinance is 85 percent of the value of the property as long as the home was purchased more than one year ago and does not exceed FHA’s county by county loan limits.
The minimum credit score for all FHA loans is 500. While there are no minimum credit score established by the FHA for cash out loans specifically, lenders will typically have their own internal requirements that are much higher than the minimum. The minimum credit score minimum requirement for an FHA cash out refinance is usually between 620 and 680. Check with a lender to see if your FICO is high enough.
Occupancy. FHA cash out refinance loans are for owner-occupied properties only and cannot be used for rental properties.
Mortgage Payment History. To qualify for an FHA cash out, you may not have more than one payment that was more than 30 days late in the last 12 months. The existing mortgage must be at least six months old and have a verified payment history, usually determined by the borrower’s credit report.
Length of ownership of the home. If you’ve lived in the home less than a year, the FHA lender will use the lower of the appraised value or the original purchase price of the home to determine your maximum loan amount. For example, if you purchased the home less than a year ago for $250,000 and it now appraises for $270,000, your maximum loan amount will be $212,500 (85% of $250,000).
Affordability. FHA cash out loans require the borrower to meet existing debt to income ratio guidelines. The maximum FHA debt ratio guidelines are 29 and 41, but may be higher in certain instances. The first ratio, 29, is the housing ratio calculated by dividing the total housing payment with gross monthly income. The housing payment includes principal and interest, taxes, insurance, monthly mortgage insurance premium and any condo or homeowner association fees. For example, if the housing payment is $2,000 and monthly income is $7,000, the housing debt ratio is 28.5%.
The total debt ratio limit is 41 and includes the housing payment plus additional monthly credit obligations. Additional credit obligations include credit card payments, automobile or student loans and installment debt. Other qualifying debt includes spousal or child support payments. This number does not include utilities, car insurance, or other non-debt payment types.
A borrower with $7,000 per month income could have a house payment up to $2,030 per month and monthly credit obligations of up to $840 per month.
Co-borrowers. Non-occupant co-borrowers are allowed on an FHA cash out refinance loan as long as the non-occupant co-borrowers are on the original note. Non-occupant co-borrowers may not be added to the loan application to help the primary borrower qualify.
Questions and Answers about the FHA Cash Out Loan Program
How much lower does my new rate have to be in order to qualify for an FHA cash out loan? There is no requirement that your new rate be lower by a specific amount but the lender may require that there be a tangible benefit to you by refinancing. This benefit may be the cash itself, a lower payment, reducing your loan term or changing from an adjustable rate or hybrid loan into a fixed rate mortgage.
Is there any way to eliminate the mortgage insurance premium on an FHA loan? The upfront FHA mortgage insurance is always required and cannot be changed. However, your lender may be able to adjust your interest rate upward and give you a credit from the excess profit from the loan, to help pay the 1.75% upfront mortgage insurance premium.
Can I refinance my conventional mortgage into an FHA cash out loan? Yes, you may. However, the FHA cash out limit is 85 percent of the value of the home and requires a mortgage insurance premium to be paid. Consider the additional closing costs with an FHA cash out loan and compare the FHA option with a conventional loan.
I’m not sure how much cash out I need. How do I determine that? Your FHA loan will be limited both by the 85 percent loan to value as well as your local loan limits established by FHA. With that limitation in mind, you should figure out on paper how much cash you need for whatever need you are trying to fill. Tell you loan officer that number, and he or she will work backward, figuring in closing costs, to come to a sufficient loan amount, assuming all loan qualification factors make the desired loan amount possible.
If you only want to pull cash out of your property but want to avoid the extra costs of a full refinance, consider obtaining a home equity loan instead. Many local and national banks are now offering second mortgages, which are a cheaper option than refinancing.
How late can a payment be in the past 12 months and still qualify? Mortgage payments are typically due on the first of the month and considered past due after the 15 th of the month. Only payments that are more than 30 days past the original due date are considered “late.” Any payments made before 30 days past the due date are not counted against you, as long as your lender received the payment on time and did not report your payment late to the major credit bureaus.
I bought my property four months ago and I think it’s worth a lot more now. Can I refinance? Properties owned less than six months are not FHA cash out eligible. You must wait at least six months. However, if your property has appreciated significantly in six months, the FHA lender will use the original sales price of the property or a new appraisal, whichever is lower. If you put the minimum 3.5 percent as a down payment six months ago, a lender will question why the property value has increased so in such a short period of time.
An FHA cash out refinance can be a great idea when you’re in need of cash for any purpose. With today’s low rates, this loan a very inexpensive way to borrow money to achieve your goals.
how many times can i refinance my home
In today’s real estate market, refinance loan rates are hovering at historical lows, with the average being in the 4% range. For millions of homeowners the potential savings on their home mortgage by refinancing into a new loan and securing a lower rate are extremely enticing. Who doesn’t want to save a couple hundred a month, or thousands of dollars over the life of the loan? Of course, there are times when you think you can get a great rate only to discover that your finances aren’t what you hoped or your home didn’t appraise for quite enough, and you’re stuck with a higher rate. Rather than dealing with this disappointment, here are a few things you can do to increase your chances of getting a better rate for your refinance. https://refinancey.com/wp-content/uploads/2016/01/Tricks-to-Improve-Your-Refinance-Rate.mp3 Using Your Resources to Compare Refinance Rates How to Hit the Jackpot by Lowering your Rate How are Homeowners Receiving Low Refinance Rates? Your Credit Score: Get Clear on Your Finances When you apply for a refinance to get lower refinance loan rates, the bank is going to want to know your entire financial situation. They need the ins and outs of your financial history, your assets, your credit report, your credit score, your job history, and more. It’s your job to make sure all of this is in place before you apply for a refinance. A good place to start is with your credit report. Contact the reporting agencies and get a report from each one so you know what is showing up on your history, and whether or not you can get anything off.
In the real estate market nearly all home loans are given through conventional lenders or those that have been approved by FHA. Conventional lenders follow the underwriting guidelines of Freddie Mac and Fannie Mae and they are not tied to the government programs. These underwriters are, however, subsidized by the government. FHA lenders follow the underwriting guidelines of the federal government and are much more lenient in their initial requirements for a homeowner to secure a loan or to refinance an existing loan. Between the two of them, they keep the real estate market functioning as it does today. As a homeowner, you’re probably thinking about refinancing, you may be wondering if you should have FHA refinance your mortgage. While this can be a great idea, there are some pros and cons that you should be aware of. https://refinancey.com/wp-content/uploads/2016/01/What-should-I-do-FHA-or-Conventional.mp3 The Secret to FHA No Costs Refinance Smart Steps to Take When Refinancing Your Loan What is a Conventional Refinance Conventional vs. FHA Requirements When you apply for a refinance through a conventional lender, you will have to meet the requirements that they have established for approval. Typically, lenders like you to have a really good credit score, in the 700 range at least but preferably higher. You also need to have a fairly low debt-to-income ratio, a stable job, and a good credit report. In addition to this, any asset you have will be marks in your favor. Each conventional lender has their own requirements that have to be met, but they are all fairly similar and they take the items mentioned above into account. If you are in.
For new homeowners, it is a step into the world of unknown territory after considering to refinance your mortgage. It can be quite jarring if you don’t know what they are doing. However, a good course of action from a good research plan will certainly make things easier. Find out why you should begin to refinance in the first place. Also, make sure that it’s a sensible decision. Here are a few things to keep in mind regarding your refinance method. https://refinancey.com/wp-content/uploads/2016/01/3-Steps-To-Help-You-Refinance-your-Mortgage.mp3 Did You Know Homeowners Can Still Refinance With No Equity? You’ll Never Believe How Easy It Is to Use a Refinance Calculator Smart Steps to Take When Refinancing Your Loan What Are Some Things to Consider in a Conventional Refinance? What’s the reason for refinancing your mortgage in the first place? Do you have a good relationship with your lender? This may determine how much you’ll have to pay in upfront closing costs. Some lenders will want you to put a 20% down payment. This is quite expensive for a new homeowner and this may take a serious bite out of your current livelihood. If you’re an adult that just graduated college, you may want to get to your student loans right away. It’ll take some time to pay a high down payment for a home. On another hand, a lender may want in between 5-10% upfront. This gives you a little breathing room to do other things. There are advantages to paying a large amount upfront. Pros and Cons of Choosing Federal Refinance Options Under FHA Guidelines Not only do you have new.
The real estate market is a huge player in the nation’s economy, which means that a lot of money funnels through it to individuals, businesses, and corporations. To help maintain this success, advertisements beckon you to buy a new home, take out a new loan, refinance the existing home, etc., this isn’t necessarily a bad thing. We all benefit from an economy that is flowing in as well as out. But the question is, should you listen to those advertisements and get a refinance? Is it worth it? They claim it will save you money, so will it? There is good and bad to a refinance, as there are with any major financial decision, and after learning a bit about the good and the bad, you’ll be better equipped to make the successful choice. https://refinancey.com/wp-content/uploads/2016/01/The-Good-and-the-Bad-When-Refinancing.mp3 Refinance Options – What Are Your Needs? Smart Steps to Take When Refinance Your Loan 4 Things to Consider Before You Refinance Your Mortgage Why You May Want to Refinance When you refinance a home you take out a new loan on an existing property. This new loan pays off the old loan and you are left with different terms. When you take out a new loan the power goes back into your hands to some degree, meaning you can adjust the terms you are dealing with rather than being stuck in the terms you already have. For example, your original loan has an interest rate of 5.5% and a 30-year-loan term. That’s not bad, but the current rate you can qualify for is 4.5% and you know you can afford a shorter loan term.
Did You Know Homeowners Can Still Refinance With No Equity?
A home purchase is typically done for two reasons. First, a place to live and second, an investment. Like any investment, this purchase can sometimes go the wrong direction, leaving the homeowner struggling to meet the demands of a debt that is more than the asset is worth. When you find yourself in this situation you may realize that a refinance can help solve the problem you are dealing with. Unfortunately, too many homeowners think a refinance isn’t a possibility for them because there is no equity. But here is a thought you might want to entertain, ‘Can I still refinance my home with no equity?’ This thought may be the key to getting you into a mortgage you can manage. 5 Key Points to Know about a HARP Loan 4 Things to Note Before Choosing the HARP Program HARP and HAMP After the real estate market had plummeted a few years ago, the government implemented multiple programs to help people who lost equity and who ended up in a mortgage that was worth more than the house. These programs are specifically for people who had the mortgage before the crash, and they have been a source of relief for thousands of homeowners. The first of these programs is HARP, which stands for the Home Affordable Refinance Program. When you ask yourself ‘can I refinance my home with no equity?’ The answer is yes; they may be able to if you qualify for HARP. The Home Affordable Refinance Program is specifically geared toward homeowners who do not have existing FHA mortgages. They also cannot be late on their payments.
Let’s Get Down to the Bottom of You’re Refinance Options
For most homeowners there comes a point during the life of their loan where they start to entertain the idea of a refinance. They may have noticed that the interest rates have dropped, or they’ve built up equity and are thinking of putting it to good use. The questions that should be asked before the refinance is, why are you refinancing, will it be beneficial, and what are my refinance options? While your loan officer and lender will be able to give you all the details of the refinance, here is a look at why people refinance and what options are available for them. Refinance Programs for Every Need Why are you refinancing? This is the first question you should ask yourself because it’s going to determine the refinance program that you pick. For most homeowners the reason they refinance will fall in one of these categories. They want to pull out the equity and use it for other investments or debt consolidation. They want to reduce the interest rate and/or the monthly mortgage payment. They want to adjust the loan terms, switching from and ARM to a fixed mortgage or altering the amount of time required to pay off the loan. They have family issues that must be dealt with. They are falling behind on their mortgage and want to alter it to make the burden easier to handle. Granted, these aren’t the only reasons people refinance, but they are the most common. So where do you fall in this list? By deciding what you need out of a refinance, you’ll be better equipped to choose the best.
You always want to come out on top after picking a refinance option you believe will help your situation. You want to get in a situation where you want to obtain the lowest refinance rates, but don’t incur so many other costs as a result. You may have needs such as stabilizing your mortgage to get back on better footing financially outside of your house obligations, or you may want to have the choice to utilizing equity to improve other sections of your life. In any case, here are a few ways homeowners are receiving lower rates. How to Hit the Jackpot by Lowering your Rate 5 Awesome FHA Refinance Options You Need to Know About What’s Your Motivation for Refinancing? We all have our individual reasons behind refinancing. Sometimes, this may not result in the lowest rates available but it will set us up for better financial stability down the line. You have to compromise a slightly higher refinance rate in order to get lower mortgage payments for a short period of time. However, you may find that this is the better solution to settle for a healthy medium. For example, if you were to apply for a federal streamline refinance, you may get the lowest refinance rate over an extended period of time that results in a higher mortgage balance. On the good side, you won’t have to wait a long time for your refinance request to be approved, unlike a conventional loan. Also, you won’t have to worry about a high level of credit or equity to go ahead with your plans. Look at the.
You’ll Never Believe How Easy It Is to Use a Refinance Calculator
In a hectic lifestyle, you always need a way to get things done a lot faster and more conveniently. FHA refinance calculator takes away all of the paperwork and confusion and puts forth all of the fees associated with a specific financial matter in one form. This is a great advantage because you can preview different refinance options presented by a number of lenders. You can utilize the calculator as a way of seeing what potential plans work for you. Here are some easy steps as you use the refinance calculator. Using a Refinance Calculator for Your FHA Loans Why Are Refinance Calculators Great For Your Mortgage? Why Should You Use a Refinance Loan Calculator? Using the Calculator Helps in Refinancing FHA Loans An established refinance company has a mortgage calculator on their website to punch in the fees to your financial plan. You need a good lender that will help you in the process of federal refinancing. Always be aware of all fees and how this will affect your financial situation. You shouldn’t depend on just your lender. Why not have one form and one system that’s efficient enough to take in all costs associated with a refinance choice? Remember, it’s not about working hard, but working smarter to save you time, energy, and money. Why hiring a financial adviser to handle all of this information when you can do it yourself? For those that are just considering federal loans, this would be a good way to view the difference in fees associated with a federal refinance plan and a conventional refinance. Find Plenty of.
If a survey was given to Americans on how they felt about Congress over the past several years, the results would most likely not be favorable. Whatever your affiliation may be, terms thrown around such as “a do nothing Congress” or “the worst Congress ever” cannot be limited to just one party. Anyone who continuously watches the news, reads news articles, or listens to it on the radio focuses on one theme; Americans are not happy with today’s government. This is not meant to say that everyone is unhappy about one particular topic and demand that the government should rectify it. This is meant to say that so many people have different things they value the most, so obviously the government cannot rectify everything. However, it is equally important to state that the government has put forth programs designed to help the needs of certain individuals. The Federal Housing Administration (FHA) has created programs for the purpose of providing types of loans that can help homeowners not only save money but keep their homes as well. There are options to choose from, keeping in mind that the process of acquiring a new loan or refinance may not be easy. It is important to learn what this program was designed for and then see when would be the best time to secure this type of mortgage. What People are Saying About FHA Refinance & HARP How Should I Refinance My Home Under FHA? Yippy, FHA is Going to Refinance my Home! What is an FHA No Cost Refinance? If homeowners feel embarrassed to question a lender about what an FHA.
The concept of FHA Home Affordable Refinance Program sounds quite believable due to the similarities of both FHA and HARP, but both are actually separate entities. HARP has nothing to do with federal loans, but rather comes from Sallie Mae and Freddie Mac loans. However, it is easy to see why some people may get confused with certain eligibility and regulations that are the same in each particular refinance service. Below are some key details of similarities and differences regarding both federal loans as well as a Home Affordable Refinance Program. For Many, the HARP Program Has Been Homeowners Saving Grace 4 Things to Note Before Choosing the HARP Program https://refinancey.com/wp-content/uploads/2015/11/What-People-are-Saying-About-FHA-Refinance.mp3 What is Home Affordable Refinance Program? First of all, you should know why HARP is beneficial. This was put forth during President Obama’s first term to help out homeowners who have a good mortgage record, but dwell in homes that are undervalued. The market crash of 2008 was the precursor to this type of program to help institute homeowners to cope with the tumbling rates. Eligibility for Home Affordable Refinancing requires your mortgage to have already been sold to Fannie Mae or Freddie Mac on or before May 31, 2009. Additionally, you cannot have chosen this type of refinancing prior unless you refinanced a Fannie Mae loan under this program during March-May, 2009. Make sure your loan to value (LTV) ratio is greater than 80%. Most recently under the Desktop Underwriter Approval (DU), there are some companies that will allow you to refinance even at 150%. This is very different from most refinance companies who see you.
Owning a home is great! Although owning a mortgage… Not so much. The great news is that with a mortgage you can refinance and save thousands. Although before jumping into it ask yourself the question “Should I Refinance?”.
Read this great resource that’ll help you decide when it’s a good time or not a good time to refinance your home.
So what’s the difference between interest rate and APR? Well, it’s pretty simple really. Although understanding what makes up an APR (Annual Percentage Rate) can make a huge difference in your monthly mortgage payment.
The basics are straightforward. You get a lender to pay off your old loan, you have now re-financed your mortgage and start making payments to your new lender (hopefully lower payments). Although, what is your motivation? Lower your payment, payoff your mortgage early, take another borrower off the loan?
Yes it’s true! Closing costs in-deed do suck, so how can you know you’re not getting ripped off? Well, make sure to pay attention to the “Good Faith Estimate” when shopping for your mortgage.
That’s a good question, and everyone in the mortgage industry is asking the same question. Mortgage Insurance has taken a huge hit since the 2008 mortgage industry tank! Hopefully this article can help answer.