4 Signs Refinancing Is The Wrong Move

4 Signs Refinancing Is the Wrong Move

Refinancing your mortgage can bring your interest rate down, lower your monthly payments and generally save you some money. With rates still low, you may be pondering whether now’s the right time to try for a better deal on your home loan. But you don’t want to pull the trigger too soon. If any of the following apply to you, you may want to think twice before jumping on the refinancing bandwagon.

Compare refinance mortgage rates. 

1. Your Credit’s Not in Great Shape

Refinancing when you’ve got a few blemishes on your credit report isn’t impossible, but it’s not necessarily going to work in your favor either. Even though lenders have relaxed certain restrictions on borrowing over the last year, qualifying for the best rates on a loan can still be tough if your score is stuck somewhere in the middle range.

If you took out an FHA loan the first time around, you might be able to get around your less-than-spotless credit with a streamline refinance, but approval isn’t guaranteed. Interest rates are expected to rise toward the end of the year, but that still gives you some time to work on improving your score.

Getting rid of debt, limiting the number of new accounts you apply for and paying your bills on time will go a long way toward improving your number so that when you do refinance, you’ll be eligible for the lowest interest rates.

Related Article: refinance closing costs.

3. A No-Closing Cost Loan Is Your Only Option

4 Signs Refinancing Is The Wrong Move

If you don’t have a few thousand dollars to spare to cover the closing costs, you can always look into a no-closing cost loan. With this type of refinance, the lender folds the costs into the loan itself so you don’t have to pay anything extra out of pocket. While that’s a plus if you’re short on cash, you may be really putting yourself at a disadvantage in the long run. Increasing your mortgage (even if it’s just by a few thousand dollars) means you’re going to pay more interest over the life of the loan.

For example, let’s say you refinance a $200,000 mortgage at 4 percent for 30 years. Altogether, you’d pay $143,000 in interest if you don’t pay anything extra. Your closing costs come to 3 percent but you roll them into the loan so you’re refinancing about $206,000 instead. That extra $6,000 would cost you another $11,000 in interest so you have to ask yourself whether the monthly savings from refinancing justify the overall added expense.

4. Compare Your Refinance Loan Options

Once you’re ready to refinance, it’s important to take the time to compare what’s available from different lenders carefully. Checking out the rates and fees each lender charges ensures that you won’t spend any more money on a refinance loan than you need to.

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The post 4 Signs Refinancing Is The Wrong Move appeared first on SmartAsset Blog.

Source: smartasset.com

New-year optimism reflected in mortgage applications jump

Mortgage applications jumped 16.7% after a 4.2% drop last week, according to the Mortgage Bankers Association.

The jump underlines the seasonality behind last week’s decrease in mortgage rates, as well as the expectation of additional fiscal stimulus from the incoming administration, per MBA Associate Vice President of Economic and Industry Forecasting Joel Kan.

“Booming refinance activity in the first full week of 2021 caused mortgage applications to surge to their highest level since March 2020, despite most mortgage rates in the survey rising last week,” Kan said.

The 30-year fixed mortgage rate climbed two basis points to 2.88%, but the 15-year fixed rate fell to 2.39% — a survey low. The refinance index increased 20% from the previous week and was 93% higher than the same week one year ago.

“Even with the rise in mortgage rates, refinancing did not slow to begin the year, with the index hitting its highest level since last March,” said Kan. “Both conventional and government refinance applications increased, with applications for government loans having their strongest week since June 2012.”

The seasonally adjusted purchase index increased 8% after a 0.8% decrease from last week.

The FHA share of total applications decreased to 9.6% from 10.1% the week prior. The VA share of total applications increased to 15.8% from 13.6% the week prior.

“This is a positive sign of more lower-income and first-time buyers returning to the market,” Kan said.

Here is a more detailed breakdown of this week’s mortgage application data:

  • The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 2.88% from 2.86%
  • The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $510,400) increased to 3.17% from 3.08%
  • The average contract interest rate for 30-year fixed-rate mortgages increased to 2.93% from 2.90%
  • The average contract interest rate for 15-year fixed-rate mortgages decreased to a survey-low 2.39% from 2.40%
  • The average contract interest rate for 5/1 ARMs increased to 2.66% from 2.63%

The post New-year optimism reflected in mortgage applications jump appeared first on HousingWire.

Source: housingwire.com

Choosing the Best Mortgage Lender

The process of finding the best mortgage loan begins with finding the best mortgage lender. They can ensure this process runs smoothly, you get the best rates, and any issues are dealt with in a timely and satisfactory manner.

But with so many different lenders, how do you know which one is right for you?

How to Find the Best Lender and Get the Best Mortgage Rates

The following tips should help you to find the best mortgage rates and lenders, potentially saving you a great deal of time, stress, and money.

1. Improve Your Credit Score

Your credit score is an important part of the mortgage process and is considered for all loans and new lines of credit. It tells lenders what kind of borrower you are and is used to determine the likelihood that you will default on your debt. If the likelihood is high and your credit score is low, you may be refused a new mortgage altogether.

There are types of mortgages that don’t require high credit scores, including those backed by the FHA. However, your credit score will still be considered and will influence the interest rate you’re offered.

2. Improve Your Debt-to-Income Ratio

Can your finances bear the weight of a new loan, one that comes with a large upfront payment and a large monthly payment? By calculating your debt-to-income ratio you can find out.

Your debt-to-income ratio estimates your affordability by comparing your monthly debt payments to your gross monthly income. For example, if you have an income of $3,000 and monthly debt payments of $600, your debt-to-income ratio is 20%, as $600 is 20% of $3,000.

Anything under 43% should be accepted once your mortgage payments have been added to the total. Some mortgage lenders will go as high as 50%. However, the higher it is, the more at-risk you are by adding new debt to your total, because once you add living costs and bills to the mix, you’ll be left with very little cash and will be one unexpected bill from complete disaster.

Reduce your debt-to-income ratio as much as possible before you apply for any new credit.

3. Reduce Your Budget

The right loan amount is more important than the right mortgage lender. The majority of borrowers overestimate how much they can afford, stretch their budgets to the maximum, and suffer the consequences years down the line. 

Most homeowners have regrets and for many, the biggest regret is not buying a cheaper house and believing they can afford more than they actually can. Your monthly mortgage payment shouldn’t stretch you too thin, nor should it leave you crippled financially. There should be some room to maneuver, some room to make extra payments when you can and to use that money for other bills and expenses when you can’t.

Think twice about spending big on your dream home and look at the benefits of getting a cheaper house. For instance, you’ll require a smaller mortgage total, could secure a better interest rate, can get a shorter term, and, therefore, will pay much less over the life of the loan.

A fixed-rate mortgage over 15-years will cost less than the same rate over 40-years. With the former, as much as 60% of your initial monthly payment could go towards the principal, and that will increase every month from there. With the latter, you could be paying just 20% to 30% towards your principal, which means you’ll clear equity at a snail’s pace.

4. Think About Your Options

You have more options than you realize when it comes to mortgage lenders and loan programs. These options include:

Conventional Loans

A conventional home loan is one that’s not backed by any government agency and typically requires a 20% down payment. These loans often used a fixed rate of interest but there are also adjustable-rate versions known as Hybrid ARMs.

Conventional loans can be conforming, which means they are less than the maximum limits set by the Federal Housing Finance Agency and meet the standards required by Fannie Mae or Freddie Mac, or non-conforming. There are also low down payment versions where as little as 3% is required. However, in such cases, borrowers will be asked to pay Private Mortgage Insurance (PMI) until 20% equity is attained.

FHA Loans

​FHA loans are backed by the Federal Housing Administration and offered by traditional lenders. The down payments are smaller and there is built-in insurance protection to cover the lender in the event that the borrower fails to keep up with monthly mortgage payments.

Borrowers need a credit score of 500 and a down payment of 10% or a credit score of 580 and a down payment of 3.5% to get an FHA loan. As a result of these reduced requirements, FHA loans may be better suited for most first-time home buyers, but that doesn’t necessarily make an FHA loan the best choice. What’s more, as they are offered by multiple mortgage companies, you still need to find the right lender and lock-in the best rate.

VA Loans

Offered by the Department of Veteran Affairs, these loans make it easier for military veterans and active personnel to get home loans. You can get a VA loan with no down payment and 90% of borrowers do just that. However, as with all other types of loans, by increasing your down payment you can reduce your rate.

USDA Loans

Offered by the United States Department of Agriculture, these loans don’t require a down payment and can be used for homes in rural areas.

Down Payments

One of the most important aspects of the home buying process is the down payment, which is the amount that you pay upfront. The higher this amount is, the lower your mortgage loan needs to be and the less interest you will pay as a result. What’s more, a down payment can also take you above the magical 20% mark with a conventional loan. 

Not only will this massively reduce your total interest, but it will negate the need for Private Mortgage Insurance (PMI) which could cost you as much as $100 a month on the average house purchase.

Many borrowers overlook these benefits because they focus on the short term. They don’t care if they are paying 50% more over the life of the loan, as the house is still technically theirs and the end result will be exactly the same. If they’re not paying much more per month and don’t notice the impact on a month to month basis, what’s the point?

The point it, you could save huge sums of money over the life of the loan and own 100% of your house much sooner. This gives you more options in the future with regards to equity loans, cash-out refinancing, and more. 

It also prevents any issues for your heirs when if you die before the mortgage clears in full. This way, you’re leaving them a house that is fully paid off and can be passed on directly, as opposed to one that has debt attached and needs to be handed down with that debt and that responsibility.

5. Compare and Get Pre-Approval

The next step is to work with mortgage lenders and mortgage brokers, see which ones work best for you and can provide you with what you need. You can look into online lenders, banks, and credit unions, check online reviews, speak with friends and family, ask experts, and generally do everything you can to find the best one. Ultimately, however, it all comes down to what they can offer you.

Once you find the one that is right for you, the one that offers the lowest rate and gives you what you need, you can get a pre-approval. The lender will check your credit report and give you a loan estimate, which will give you an idea of how much you can borrow and what you can expect to pay.

It’s worth noting, however, that this pre-approval isn’t set in stone. It is subject to additional checks performed prior to the loan. If you apply for a lot of credit cards and lose your job between pre-approval and mortgage, you’ll likely be rejected and that contract will be ripped up.

6. Check the Small Print

Don’t let your excitement get the better of you, don’t be too eager. Read the small print, make sure you understand the loan terms and know what sort of origination fees and other closing costs you’ll be expected to pay. These differ from lender to lender and some of them can be negotiated, so don’t assume that they are standard across the board and can’t be changed.

If you’re not sure about any step of the process, ask questions. If you feel a little out of your depth, do some more research. We have countless articles on mortgages here and can help with everything from mortgage terms to the actual mortgage application, after which we can guide you towards the best strategies for paying off your balance.

Choosing the Best Mortgage Lender is a post from Pocket Your Dollars.

Source: pocketyourdollars.com