Many homeowners find themselves caught in a situation where it has become necessary for them to refinance their current mortgage. This can be due to different reasons, including negative equity in the home, a high interest rate or payments that have suddenly become unaffordable.
Unfortunately, understanding the refinance process can sometimes be quite tough for some homeowners. One of the biggest problems that most homeowners face is having to pay out hundreds of dollars in application fees to determine whether they are even eligible to refinance their mortgage.
The largest hurdle for homeowners interested in refinancing is a lack of equity in their home. This is often where the refinance process falls apart. Homeowners who have purchased their home within the last three to five years are typically more at risk for this problem. It can be particularly problematic for recent homebuyers who also made a relatively small down payment on their home when they bought. Homeowners who live in neighborhoods where prices have declined recently are also at risk for experiencing such problems.
The rapidly increasing prices of home sales over the last few years combined with mortgages that featured low down payments or even no down payments have now created a situation in which a surprising number of homeowners find they simply do not have enough equity in their homes in order to refinance.
Due to the fact that lenders are wary of lending more money that the value of the actual home, homeowners who have little to no equity and especially those who are upside down on their mortgages have found significant trouble in qualifying for a refinance.
Perhaps even more problematic are the large numbers of homeowners who simply are not sure whether they have enough equity to qualify for a refinance and yet face no other choice but to apply for a refinance and pay the upfront application fees in order to determine whether they are eligible for a refinance.
If you do not want to go to the trouble and expense of submitting an application to determine whether you qualify for a refinance, you can do some math on your own to get a ballpark idea of whether you might qualify.
Firstly, estimate the value of your home. Many homeowners make the mistake of either over-valuing or under-valuing their home's worth. If you are not sure of your home's value ask a real estate agent to give you a free comparative analysis.
Next, talk the matter over with a loan officer and provide them with the approximate value of your home. The loan officer will be able to discuss the lender's guidelines with you regarding loan to value ratio. The traditional rule when it comes to loans is to maintain an 80% loan to value ratio, but this is not always the case with all lenders. Some lenders will offer loans with a higher loan to value ratio in some circumstances, especially with mortgage insurance. Mortgage insurance is a special type of insurance that is paid on the part of the borrower and which will protect the lender in the event that the borrower should default on the loan.
In the event that you decide to go ahead and submit an application, you should make sure that you find out precisely what the upfront application fees will be so that you can be fully prepared. Generally, you should expect to pay between $300 and $800 in fees. You may also wish to shop around for lenders in order to obtain the lowest application fees possible, but make sure that you also consider the terms to make sure you do not sacrifice a low application fee for a higher interest rate.
You should also try to find out whether the appraiser will require you to pay the appraisal fee upfront. While at one time this was not common, an increasing number of appraisers are requiring it due to the fact that so many refinance applications are falling apart at the appraisal point.
Be aware that while it can be tempting to go ahead and purchase your own appraisal before you apply for the loan; this is not typically a good idea. As the rules for loans change, in most cases, the appraisal must be ordered by the lender. If you attempt to jump ahead and get your own appraisal, you may find yourself in the uncomfortable position of having to pay for two appraisals.
Just be vigilant and prudent when going through the process. Remember to read all the fine prints before signing anything.
Unfortunately, understanding the refinance process can sometimes be quite tough for some homeowners. One of the biggest problems that most homeowners face is having to pay out hundreds of dollars in application fees to determine whether they are even eligible to refinance their mortgage.
The largest hurdle for homeowners interested in refinancing is a lack of equity in their home. This is often where the refinance process falls apart. Homeowners who have purchased their home within the last three to five years are typically more at risk for this problem. It can be particularly problematic for recent homebuyers who also made a relatively small down payment on their home when they bought. Homeowners who live in neighborhoods where prices have declined recently are also at risk for experiencing such problems.
The rapidly increasing prices of home sales over the last few years combined with mortgages that featured low down payments or even no down payments have now created a situation in which a surprising number of homeowners find they simply do not have enough equity in their homes in order to refinance.
Due to the fact that lenders are wary of lending more money that the value of the actual home, homeowners who have little to no equity and especially those who are upside down on their mortgages have found significant trouble in qualifying for a refinance.
Perhaps even more problematic are the large numbers of homeowners who simply are not sure whether they have enough equity to qualify for a refinance and yet face no other choice but to apply for a refinance and pay the upfront application fees in order to determine whether they are eligible for a refinance.
If you do not want to go to the trouble and expense of submitting an application to determine whether you qualify for a refinance, you can do some math on your own to get a ballpark idea of whether you might qualify.
Firstly, estimate the value of your home. Many homeowners make the mistake of either over-valuing or under-valuing their home's worth. If you are not sure of your home's value ask a real estate agent to give you a free comparative analysis.
Next, talk the matter over with a loan officer and provide them with the approximate value of your home. The loan officer will be able to discuss the lender's guidelines with you regarding loan to value ratio. The traditional rule when it comes to loans is to maintain an 80% loan to value ratio, but this is not always the case with all lenders. Some lenders will offer loans with a higher loan to value ratio in some circumstances, especially with mortgage insurance. Mortgage insurance is a special type of insurance that is paid on the part of the borrower and which will protect the lender in the event that the borrower should default on the loan.
In the event that you decide to go ahead and submit an application, you should make sure that you find out precisely what the upfront application fees will be so that you can be fully prepared. Generally, you should expect to pay between $300 and $800 in fees. You may also wish to shop around for lenders in order to obtain the lowest application fees possible, but make sure that you also consider the terms to make sure you do not sacrifice a low application fee for a higher interest rate.
You should also try to find out whether the appraiser will require you to pay the appraisal fee upfront. While at one time this was not common, an increasing number of appraisers are requiring it due to the fact that so many refinance applications are falling apart at the appraisal point.
Be aware that while it can be tempting to go ahead and purchase your own appraisal before you apply for the loan; this is not typically a good idea. As the rules for loans change, in most cases, the appraisal must be ordered by the lender. If you attempt to jump ahead and get your own appraisal, you may find yourself in the uncomfortable position of having to pay for two appraisals.
Just be vigilant and prudent when going through the process. Remember to read all the fine prints before signing anything.
