Refinancing Your Home & Useful Tips (part 2)

 

Small house in Prague, CZ

The Wall Street Journal continues to be the most educational newspaper available worldwide. For example, Ruth Simon’s article entitled “Getting the Best Refinance Deal,” which was published last Saturday in the Weekend Investor section, is simply too informative to not summarize for those not lucky enough to have a subscription.

Possibilities For “Under Water” Borrowers to Refinance

Borrowers with mortgage balances exceeding their home’s current value may soon be able to refinance, based upon the recent $25 billion settlement (“The Settlement”) between the federal government and five of the nation’s largest banks (i.e., Ally Financial, Wells Fargo, J.P. Morgan Chase, Citigroup and Bank of America).

To qualify, borrowers must satisfy the following criteria.

a. Must be current on their mortgage;

b. Have a loan owned and services by one of the five banks that was originated prior to January 1, 2009, and meet other criteria.

The Settlement requires the banks to offer a refinance rate of at least .25 percentage points lower than the borrower’s existing mortgage rate, or decrease monthly payments by at least $100.

 

Refinancing Possibilities at Fannie Mae and Freddie Mac

Borrowers with loans backed by Fannie or Freddie may be able to refinance their mortgage, even if they have zero equity in their homes and/or weak credit scores. Borrowers owing more than 125% of their home’s value may be able to refinance under the government’s Home Affordable Refinance Program (HARP). https://www.efanniemae.com/sf/mha/mharefi/pdf/refinancefaqs.pdf

According to the WSJ article, Bank of America and J.P. Morgan are offering HARP refinances only to existing customers. Additionally, U.S. Bancorp won’t provide HARP refinances to borrowers owing more than 105% of the home’s value, unless they already service the loan.

 

Challenges Should Be Expected During the Refinancing Effort

Listed below are a few of the hurdles you may encounter.

1. Be prepared for lots of paperwork and upwards of ninety days to complete the process. Banks continue to be inundated with foreclosures, short sales and ever changing federal requirements. Consequently, don’t expect to complete the refinancing process quickly. If you are self employed, own multiple properties or haven’t been in the same job for two years, be prepared for extra scrutiny, even if your credit is good and have substantial unpledged assets.

2. The appraisal process will likely take longer than you expect and the appraised value may be less than it might have been just a few years ago.

 

Tips to Ensuring Your Refinancing Effort is Successful

1. Examine your credit report before beginning the refinancing process to be sure it’s correct. Give yourself plenty of time to clear up any errors on your report(s). A free credit report can be obtained from each of the three major credit bureaus – Equifax, Experian and TransUnion- annually. To obtain your report(s) visit www.annualcreditreport.com or call 1-877-322-8228.

2. Consider a new mortgage with a shorter term, if you want to maximize your savings. The shorter the term, the less interest you will pay. Mortgages can span 30, 25, 20, 15 and 10 year periods. Choosing a 15 year term versus 30 years will save you thousands of dollars in interest expenses over the life of the mortgage.

3. According to HSH.com, it pays to shop around, as difference between the best deal and worst deal may be as much as 100 basis points or 1 percentage point.

4. If you have significant cash reserves or other assets (e.g., CDs, IRAs, etc.), consider using those resources as an enticement to a potential lender. Just make it known to the lender that you would be willing to move some of those assets, in order to consummate the refinance transaction. Be creative, as you never know what might seal the deal.

 

Please feel free to add your comments.

Photo courtesy of Flickr and GrahamC99.

@homeslouky

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