1.) How long do I need to wait to refinance my home?
The typical waiting period is 6-12 months after your purchase or previous refinance. It’s worthwhile to speak with your loan servicing dept. who helped you on your current loan to confirm there aren’t any prepayment penalties for refinancing.
One more thing to think about is the cost of refinancing. If you’re seriously considering a refinance but the only thing holding you back is you want a rate that’s lower by .25-.50%, it may be more cost effective to pay a discount point for a lower interest rate now as opposed to paying for a refinance a few months later when or if rates drop.
Sometimes, your home value can drop, employment issues arise, or worse mortgage rates surprisingly increase and you may miss your opportunity.
2.) Is there really a “No Cost” mortgage refinance?
Actually, with a home mortgage refinance (or purchase loan), there are going to be costs involved. The cost for an appraisal, credit report, processing, loan origination, underwriting, title insurance, closing agent, notary, and so on.
Keep in mind any prepaid items such as property taxes, homeowners insurance, mortgage interest are not technically closing costs at all. The reason why is because they would be due and payable sooner or later whether you refinanced or not.
The good news is there is a way to structure your refinance loan so closing costs are minimal or paid for completely. Essentially, the costs to obtain the new home loan are either financed into the new loan amount, or paid by the lender in if you take a higher interest rate. It’s usually a rate that is about .375 to .50% higher to cover the costs.
Determining which option is best will involve analyzing the difference in paying costs now versus paying a higher monthly payment over a period of time. This really rests on how long will you remain in the home.
If you can recoup the costs within one to two years, it’s usually worthwhile because a large majority of people refinancing typically keep the home for more than two years.
3.) Is it true that I should only refinance if I drop my rate 1% on my mortgage?
Some people have a rule of ½%, 1%, 2%, etc. Every mortgage is different because some people have larger loan amounts of $500,000 or over one million dollars in Denver or Boulder while others may have relatively small loan balances of $100k-$200k where a larger interest rate drop makes a bigger difference.
In addition, with low- and no-cost refinancing options available, the cost of refinancing can be regained a lot quicker. Let us analyze your monthly savings and the time to recoup any associated costs.
4.) Can I simply compare my current payment to the proposed payment and figure out if its beneficial?
Of course, you could compare the two payments to confirm your monthly savings, but your existing and proposed loans might have two different amortization periods. For example, if you currently have a 15 year mortgage and you are comparing that to a 30 year mortgage refinance. That would be an incorrect analyses.
However, if everything is alike such as the interest rate, loan amount, and payment is a lot lower, you will realize monthly savings and may use that cash elsewhere.
5.) Will I automatically qualify?
No, you will have to qualify for a refinance loan just as you did when you bought the home or previously refinanced. Although, specific loan programs like the FHA Streamline refinance & VA Streamline (IRRRL) loans will allow borrowers to qualify without employment of income on the application. These two loan products are super easy for homeowners to get refinance.
6.) Will I need to get an appraisal when I refinance?
Yes for a traditional conventional loan. Although, there are instances of receiving an appraisal waiver for conforming loan amounts with estimated loan to values of 80 or less. For a government insured loan, like an FHA or VA refinance, where there is not more than $500 cash back at closing, an appraisal is not required.
7.) Does bad credit exclude me from a refinance loan?
Not exactly. When considering a refinance loan it’s important to remember that the better your credit score the better interest rate you can get. So if you don’t have perfect credit you can still qualify for a refinance loan but you’ll want to make sure that you’re lowering the interest rate on your loan enough to make a refinance worth it.
8.) Is it easier to refinance with my current mortgage company?
Not necessarily. Sometimes your current lender will still have copies of your pertinent financial records and can lessen the documents that you need to be provide.
However, the process and timing to complete your loan is similar with most lenders. It’s a new loan but the process remains the same.
Additionally, you may pick any mortgage lender to refinance your mortgage. There is no requirement to contact or use the same lender who got you the original loan.
9.) Can I Refinance If I have a line of credit or a second mortgage?
Yes. It may require an extra week or two as the second lender needs to agree to re-subordinate their loan behind the new first lender.
Other important things to consider before refinancing:
Does the home have enough equity?
How long will you stay in the home after it is refinanced?