A home refinance can be a daunting task, but with a little bit of education and a quality loan officer you can successfully navigate the process.
Particularly in this low-interest rate environment, this is a very common refinance where the goal is to reduce the interest rate and/or the term of the loan. By reducing the interest rate on the loan, you can save significant money on your monthly payment and in total interest paid over the life of the loan. Reducing the term of your loan to a 20, 15 or even 10 year fixed can help you pay off your loan faster and reduce your interest paid over the life of the loan.
Can I do a Streamline Refinance?
Depending upon which program you currently have, you may be able to Streamline Refinance if you have an FHA, USDA or VA loan which may allow you to refinance without the need of an appraisal.
Cash-out refinances allow you to use the equity in your home to receive cash at the settlement table for a child’s educational expenses, debt consolidation or even to help you complete a home project.
There are many programs in which you can refinance into each with it’s own advantages and disadvantages; whether it is Conventional, FHA (Federal Housing Administration), VA (Department of Veterans Affairs), USDA (Rural), or HARP (Home Affordable Refinance Program).
In order to compare offers from different lenders it is important that you compare “Apples-to-Apples”. Each financing program will have many different rate / cost combinations. Here are the most important factors to know how a lender is quoting you a rate that might be too good to be true:
Are you charging any points?
A common tactic among unethical lenders/ loan officers is to offer a low rate without initially disclosing that it includes points. Of course, it may be advantageous to pay points – but make sure all other quotes include the same amount of points to make sure you can adequately compare rate quotes.
What appraised value / credit score are you assuming for your quote?
Be wary of a lender who quotes a rate that may not be realistic for your credit profile or amount of equity you currently have at your home. By establishing what a lender is assuming in these parameters can keep you from being quoted a rate that you cannot qualify for.
Will any closing costs be wrapped into my loan?
A “No Closing Costs” loan is sometimes marketed by unethical loan officers when in fact the closing costs are wrapped into the loan amount. Wrapping closing costs into a loan can be an effective strategy when refinancing, however it is important to establish whether a lender is actually covering / paying for your closing costs, or just wrapping those fees into your loan.
What program & amortization are you quoting?
Many consumers are surprised to learn that after seeing a rate that seems to good to be true, that it in fact is not the program they were expecting. For instance, someone looking for a 30 Year Fixed rate will see an exceptionally low rate being advertised only to learn that it is for a short-term Adjustable Rate mortgage or for a 10 Year Fixed program that they are uninterested in. As a general rule of thumb: If it seems too good to be true – it probably is.