REFINANCING YOUR HOME
Refinance A Home
If you are looking to refinance your current home loan, your first step is identifying an experienced and licensed professional that can and will provide you accurate market information for you to base your decisions from. Our past clients consistently testify to our ability to perform, and our fee structures are among the most competitive in the industry.
Possible Refinancing Benefits:
There are many reasons one might consider refinancing their current home loan. The goal of any refinance begins by reviewing the possible benefits of such action, and determining whether the market will provide you the solution.
-Get cash out.
-Lower the interest rate on your Mortgage loan.
-Reduce monthly mortgage payments.
-Minimize – or eliminate – cash out of pocket refinance costs.
-Improve overall monthly cash flow.
-Shorten the life of your mortgage loan.
-Lock in your interest rate for a longer fixed period of time.
-Fund home improvements.
-Consolidate a first and second mortgage into a single home loan.
-Pay off high interest credit cards.
-Secure a down payment for a new home purchase.
-Finance a college fund.
-Establish an emergency line of credit.
This list could be extended indefinitely, and depending on your goals your professional loan consultant will be able to identify whether there is a program that meets your needs. Once a program has been identified an objective review of the benefits associated with a refinance can be conducted and a responsible decision can be made.
Evaluating Your Finances:
Your schedule of real estate owned probably accounts for the largest investments within your portfolio; and like any other investment your home and the financing behind it should be re-evaluated occasionally. A careful analysis of your finances is required if you are considering a refinance; and you should be prepared to discuss your history of income, asset holdings, and credit background regardless of what you will be documenting for the lender. Because a home loan approval requires a thorough review of these subjects, along with an appraisal to determine the value of the collateral; this can be a very useful exercise to determine overall strengths and weaknesses of your personal financial situation and should be considered as such.
During this evaluation it is important to be as open and forthcoming as possible. Do not mislead or keep information from your finance broker. Guidelines for home loan qualification include many different solutions for people that have less than perfect credit history and misrepresenting your position may keep your finance broker from identifying a program that you may otherwise have benefited from. Be candid, open, and honest during this time of assessment, and you will get the best results.
Identifying the Right Refinance Program:
Finding the right program when refinancing is a question of balancing an acceptable level of risk versus security, while identifying a fee structure that maximizes the home loan benefit based on your particular goals. Various methods can be utilized by your loan advisor to produce “no cost” and “low cost” home loans, but there are advantages and disadvantages of each which should be discussed. In addition, when refinancing finding the home loan that has the right degree of risk is as important as the final interest rate. A home loan with a low interest rate but a short fixed period may be inferior to a home loan with a slightly higher interest rate but is fixed for the life of the loan. You should be open to a discussion of alternative loan programs that your loan consultant may have available even if you have identified what you believe to be the right home loan program for you. Self prescription can be dangerous and depending on your situation there may be other programs that offer you more benefit than the home loan program you are familiar with; recognize the fact that your home loan advisor is a professional working for you and any and all recommendations in relation to refinance programs made are for good reason.
Paying Points:
When researching a refinance you will be presented with the option of paying points. “Points” is a general term; each “point” equaling one percent of the loan. Although any cost of closing, could be broken down and thought of as “points,” within the industry this term refers to a fee paid for the specific purpose of reducing the interest rate, and a reduction to interest rate means a reduction in your monthly mortgage payment. For this reason if your situation affords you the option of paying points, the additional cost up front can be well worth the monthly savings you will experience, so be sure to discuss these options with your mortgage broker before making any final decision.
Refinance Expenses:
There are many ways to handle the cost of a refinance. You can bring cash to the table, refinance the cost of closing into the new balance of your loan, or look to take advantage of lender paid closing; all of these options have consequences that you should discuss with your loan broker. In addition you should understand the different fees charged. These costs are similar to the fees charged to you when you secured your original home loan and will include: title and escrow fees, underwriting and processing fees, your broker’s compensation and prepaid interest as well as other minor miscellaneous expenses. The expenses associated with a refinance are required to be disclosed to you within three days of you completing a loan application. This itemized breakdown of estimated settlement should be discussed line by line with your loan consultant and should always represent worst case scenario. The production of an extraordinarily low estimate of settlement charges is counter-productive and ethically questionable. Having a realistic depiction of cost erring on the high side is much more helpful for evaluation purposes anyway. If your loan officer is honest, and you have agreed on their fee for service, it is in their interest to close with as little additional cost to you as possible.
When reviewing the good faith estimate review all fees charged with your home loan consultant; with reasonable expectations and the wide variety of ways to manipulate the structure of fees, identifying agreeable terms is almost always possible.
Refinancing Pitfalls:
The pitfalls associated with a potential refinance are extensive. Probably the most common is overpaying for your refinance. The best way to ensure you do not overpay is to agree to your lenders fee for service before beginning the process. Once you have come to terms and have agreed to their fee for service and you have it in writing it becomes a question of structuring the program.
Know who will be handling title and escrow and get their contact information. Call the escrow company directly and go over the fees they are charging to ensure there is are not any opportunities to reduce their fees as well. You have the choice of which title and escrow company handles your closing, and can change companies although this must be done early in the process which is why this phone call is always a good idea early in the process.
Exclusivity agreements are something that many mortgage companies and banks will have their clients sign. This is a mistake. Never sign an exclusivity agreement with a mortgage company or bank. Doing so guarantees them your business or a fee to break contract. You should always reserve the right to walk away without penalty for whatever your reason.
Application fees or upfront fees to get the process started are another tactic lenders like to use to try and secure your business. Never pay an application or upfront fee to get the process started. These fees are very different from appraisal fees. Paying for your appraisal is something you should be prepared for and is quite different than an up front application fee because the cost of the appraisal is not incurred until you have your formal approval and know what conditions must still be fulfilled before you can secure the loan. If any of these prove problematic you can work them out to satisfaction first, or cancel without any cost out of pocket. Had you paid an upfront application fee you would be out that expense.
Generally speaking common sense will keep you out of these pitfalls, but working with an established broker is a good idea as well. Brokers have fiduciary responsibilities to their clients which is the highest level of trust the law recognizes. Bankers and correspondents do not have this fiduciary commitment.
Why use a broker?
There are many reasons why people choose to secure financing through a finance broker as opposed to a bank. A broker:
- Has a fiduciary commitment to his or her clients.
-Knows which lenders focus on your loan niche, which means better pricing and terms.
-Has options banks do not have: brokers have the ability to flip your loan to other lenders if the terms warrant such action.
-Has market knowledge, and state licensing is required – no guarantee a bank representative is independently licensed by the California Department of Real Estate
-Broker originated loans out-perform retail (bank originated loans) two to one – less chance of default.
-No obligation or commitment required.
-Wholesale interest rates: brokers offer wholesale rates as opposed to retail rates offered by banks.
-Bid desks allow your broker to negotiate better terms on your behalf should rates come down after your rate has been locked in.
-Mandatory disclosure of all commission made – banks can legally hide fees from you (thank their lobbyists).
-Ability to negotiate fees and their structure.
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