When the government was handing out buy-outs to several car manufactures, it seemed that John Q. Citizen was left out of receiving the necessary funds to live but barely to survive. It can be either difficult to overcome or can reach one’s goal easily. Of course, I am not forgetting those who are in the middle where an individual walks the line and one life-changing decision would make the difference in succeeding or failing. For homeowners in need who could benefit from having some extra money, there is a choice that can be made in which a financial situation(s) can be easily resolved. This forever alternating decision is to whether or not a homeowner should take out a refinance loan. Of course, this can be problematic if a person does not know what refinancing is and how the borrower can benefit from it. Let me try to put your mind at ease and explain what this type of a loan is and suggestions to those who are unsure about refinancing.
What is a Refinance Loan?
With the need for extra income to resolve a financial problem, a homeowner does have options available that can secure these funds. One option is known as a Refinance loan. This type of a loan is taken to replace the original mortgage and substitute it with a new debt obligation. The loan is higher than the first mortgage so the borrower is not responsible for paying two mortgages. There are several reasons why someone would want to refinance so long as the value (equity) of the home is more than what the first loan is. One reason may be that interest rates were higher at the date of signing but now their much lower. This reduces the monthly payments or a reduced term. Another reason for refinancing has to do with the monthly payments. This will not only reduce the amount needing to be paid off but can also make the length of the loan longer or shorter. Now that you know what is meant by a refinance loan, let’s discuss how this type of a loan can be beneficial to the owner.
Suggestions for Homeowners who are Unsure about a Refinance Loan
Knowing what this type of loan is will only be half of the battle. There are other factors that need to be considered before undertaking this type of a loan. The first thing is to not sit back on the side lines and get into the game. Hesitation is not a bad thing considering it would be foolish to jump in without knowing the consequences. However, procrastinating will not solve the issue at hand but only make things worse. Make sure you get the loan that best suits your needs in both short-term and long-term.
Another suggestion would be when considering the type of loan you want, a homeowner needs to know if the loan is to be paid off sooner, let’s say fifteen years, or later in thirty years. A short-term loan means it will be paid off quickly but this would increase the monthly payments. A long-term loan would decrease the monthly payments but add to the interest that would have to be paid.
When deciding on the type of refinance to get, there are a variety to choose from. For example, a Homeowner can decide to purchase an FHA (Federal Housing Administration) loan. The good thing about this refinance is a person can acquire this loan and allows the borrower to put as little as 3.5% down. The bad thing is FHA fees are high as it is and if those fees increase, the more that has to be paid off. When choosing a conventional loan, the borrower would not have to worry about an increase in fees but would need to put down at least 5% to acquire this mortgage. Keep in mind that if your credit is bad, the more likely a larger percentage will have to be put down.
Speaking of credit, one thing that must be done is to know your credit score. This can prepare the borrower by knowing how difficult it would be to acquire a refinance. Most lenders would like to see a spotless credit history of at least one year on your credit report. To get the best rate, your score should be at least 720. Even though a person can get a good deal for a loan with the lowest score allowed, which are 580, the lower the score would make getting the loan harder.
In today’s world, it is no shame to admit that an individual would like to have a source of extra income. While some can take their time to achieve this, others are not as fortunate. Luckily for homeowners, there are options you can choose from. When it comes to taking out a refinance loan, it is something not to rush into if it can be avoided. Do the research on what type of a refinance best suits you needs and not only plan for the present but also consider the future. When an individual is fully prepared to take out a refinanced mortgage, the end result will be a positive one and will truly help out a homeowner in need.