Refinancing is simply replacing your current loan with another. If you have equity ou may decide to utilize it in your refinance to help you pay for other things like school loans, car bills, and more. There are some things you must know regarding your financial strategy. Take a look at some ideas and suggestions.
Is a Conventional or Federal Loan Situation Better?
There are a number of refinancing options you have in order to make your situation manageable. There are some main differences in the way you set up your loan strategy particularly if you have a conventional loan or a federal loan. In a conventional loan, you may need up to 20% down payment on the house you wish to refinance. Also, you may need a significant amount of good credit. Typically, the amount of equity in the home is covered in the closing costs for purchasing. It’s a bit expensive in the pocket, but the payoff may be great once you consider using a conventional cash out plan. However, you’ll need a lot more paperwork and your lender may be a bit harder on you regarding requirement.
On the flip side, you have a federal refinance option that doesn’t require as much equity or credit. You’ll need around 10% equity if you have less than a credit score of 580. Also, you’ll need 3.5% equity if your credit score is 580 and higher. Federal refinancing can be an advantage especially if you don’t have much credit and equity. More than likely you’ll have to pay different premiums if you don’t have the funds to cover the costs of refinancing. It can be quite costly but well worth it if you do it right.
What Are Typical Refinancing Requirements?
Refinancing is pretty straightforward, but it doesn’t come without some rules and regulations. Typically, you need a clean set of on-time mortgage payments up to 12 months, It shows your lender that you are more than capable of handling a refinance. If you’re in a situation where you’ve had a few delinquencies, do your best to clear them up before applying. It’s hard to get acceptance in refinancing especially a conventional refinance because the paperwork is much harder to go through. Also, be sure to have everything on record as far as receiving cash gifts from family, your income record, and your tax info. You never know if one unmarked piece of information can seriously halt the refinance process. Be thorough as possible and make sure you have copies of everything so you can answer questions in case a lender is a bit hesitant to accept your loan application.
Can a Lender Help You With Closing Costs?
In a no fee type of refinance situation, the lender assumes your costs upfront. This seems like a great thing, but there’s a responsibility on your end. As a result of refinancing by this method, your closing costs can actually escrow with your tax and insurance costs on the back end. Essentially, you’ll have to pay these fees back by covering a higher mortgage balance. If you have a temporary plan of having a fixed rate for 5 years and you have a good notion that you can get back on track, this may be a great option. Also, if you plan to sell the property before the short term rate is over, this can get you out of a financial bind.
Refinancing is an excellent way to get on a course of action to help stabilize your mortgage. Also, you’ll find that you have the opportunity to use the extra equity in your home for multiple reasons such as financing your dream trip in the summer time, saving for a rainy day, or just increasing the market value of your home.