For a More Common and Familiar Refinance.
Ahh yes, the “plain jane” way of refinancing. Have you received your home through more traditional methods outside of the government? Are you looking to refinance your home but don’t know your options under a conventional loan? Luckily for you, here are some strategies to make the process much easier.
How do I apply for a refinance with a conventional loan?
First of all, get in contact with a lender. Sometimes, a lender will preapprove your loan based on your income record, your credit score, and how much you have left on your loan. If you don’t get preapproved, you can fill out an application that asks questions such as employment history, W-2s, and verifiable income. Be prepared to provide thorough information. Don’t forget to mark down a cash gift that your Granny gave you on your birthday. If it’s a significant amount, they want to know about it. Leave no stone unturned because a lender will be on you like peanut butter and jelly.
Does credit score matter?
Yes, yes, yes. When you are dealing with a conventional loan, most lenders want you to have a score of at least 700 and up. Why? That tells them that you are responsible. You pay your bills on schedule, and you are trustworthy of receiving a new loan. Remember, lenders are apprehensive until you actually close the home. Not to mention, most lenders want you to prove at least 10-20% equity in the home. Before you carry on a serious commitment like that, ask yourself a couple of questions. Do you have low debts outside of your home? Do you have at least up to a year of on-time mortgage payments? Stability is key when acquiring a refinance of this type.
What’s the advantage of a conventional loan?
From the simple fact you placed a hefty down payment in the home, it makes it much easier to refinance. In a lot of cases, you won’t have to wait very long to cash out because the equity is available. Additionally, if you were to cash out at this higher level of equity, you’ll receive a higher cash out amount. With a federal loan, you can cash out at a lower level of equity but there are stipulations such as an upfront mortgage insurance premium and a monthly insurance premium. Not all costs are created equally. Another advantage of seeking a conventional loan is that you won’t be bombarded by appraisals when you cash out. When going with a federal lender they can be very meticulous when it comes to borrowers cashing out. There is more risk at stake because of the lower requirements. Appraisal fees can get quite costly.
How to utilize extra equity?
It’s possible to cash out some of your equity and utilize it towards personal or more priority based things. For example, if you had school expenses, a cash out refinance would be an excellent way to pay it off. Likewise, if you wanted to take that dream vacation to the Caribbean, go ahead and have a drink by di beach! You can always invest in additional properties. Just make sure you abide by your state’s laws regarding the minimum amount of years you must be in a primary residence before investing in an additional property. Also, it’s not a bad idea to use the equity to reinvest in your primary home to greatly raise the market value up.
Ultimately, it’s in your best interest to consult a lender. Become aware of the type of credit scores and down payment needed to secure a conventional loan. Also, be aware of the interest rates included. What type of short term and long term benefits will you receive with different interest rates? Having an idea of these factors will make the process a lot easier. Additionally, you’ll have a higher chance of keeping up with payments and not going into delinquency.