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Can a New Mortgage Save Your Home?
By Susan Willets | June 11, 2008
Can Refinancing Work For Me?
Refinancing involves obtaining a new mortgage from a different lender. This new loan will be used to payoff your existing mortgage, unlike a loan modification in which you retain the same lender and just change the terms of your current loan.If you have good credit and/or some equity in your property, this may be a good option for you. If you are interested in refinancing as an option you will need to act quickly, start as early as being even one payment behind. It’s easiest to refinance if you are less than 90 days behind on payments and your mortgage has not yet gone to foreclosure. Once you reach the point of being “in foreclosure” the damage to your credit report makes it much more difficult to get approved for a new loan.
Things to Consider
Before you choose to refinance, it’s important to take a good look at your current situation. Answering the questions below will help you to gain a better understanding of what aspects of your finances could improve and what aspects of your current situation make you a good candidate for refinancing.
- How does the interest rate on your current loan compare to current market interest rates?
- How long do you plan to stay in your home?
- Do you have outstanding debt you would like to consolidate as well?
- Will you come out ahead after comparing the money saved with the additional fees that will need to be paid?
- Do you have good credit?
- Are you trying to prevent or stop a foreclosure?
Types of Refinancing
Once you have determined that refinancing is a viable option for you, the next step will be to research which type of refinancing you wish to pursue. There are several types of refinancing, some which are available to everyone and some which are only available to certain individuals. Here is a brief overview of the types of refinancing that may be available to you. Choose the option that will best help your financial situation/needs.
- Conventional Refinancing - a standard, non-government backed loan.
- VA Refinancing - government backed loan, often with lower interest rates, available to veterans.
- Home Equity Loan - a loan that is backed by the equity in your home.
- Hard Money Loans - an asset-based loan in which you would receive funds based on the value of your property. CAUTION: These often have very high interest rates!
- Loans from family and friends - these are loans where you borrow money from your family and friends to bring your mortgage to current. These are handled by each individual mortgager and are not overseen by a bank or lender.
How to Refinance Your Mortgage
Refinancing begins by applying for a new mortgage. For banks and lending institutions, you will do this by completing a loan application and submitting it for approval. Hard money lenders usually complete “applications” by asking questions over the phone. Once your application is received, the lender will contact you for futher information and inform you of the remaining steps in their approval process.
Be sure to shop around and get quotes from several lenders as each lender has different fees and rates, credit requirements such as mortgage insurance, terms, and services. There are several online sites available that will assist with obtaining quotes for you to compare. These are listed below and are often free to use.
Additional Fees
While refinancing can be an appealing and worthy option, be sure you are aware of additional fees that may apply to your situation as they can quickly add up. Talk with your lender to find out which fees are covered in your new loan and which you will be expected to pay upfront/out of pocket. Some of the additional fees may include:
- Appraisal Fees - These fees are paid directly to the appraiser who provides the appraisal service. Prices generally range from $200 - $500.
- Originator Fees - A loan originator is an individual who connects borrowers with lenders. Their fee is based on the amount of the loan and the value of the property and will be charged to you in the form of points on your loan. Typically it will be 1-3 points.
- Title Fees - These fees cover the costs included with the title search and transfer. You can estimate your title fees at about 10% of your loan value.
- Stamp Duties - This is a tax that is collected by the state when real estate is transferred of sold. It is also known as transfer tax, mortgage tax, intangible tax, and documentary stamp tax and varies by state.
- Arrangement Fees - This is similar to a deposit and is paid to the lender to reserve your mortgage funds. Again, this varies from lender to lender.
- Closing Fees - Also known as closing costs, these fees are the final sum and include many of the options from this list. They are given this title because the fees are due at the closing of the loan.
- Early Payoff Fees - These fees are only paid if you pay your loan off early and your loan agreements includes an early payoff penalty. These fees are charged by the lender so check with them for more details if this applies to your loan.
Topics: Avoid Home Foreclosure |