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QUESTIONSYou Should Ask Before

REFINANCING YOUR

MORTGAGE

If you’ve ever considered refinancing your mortgage, now would be the time!

ALL TIMErates

LOW

Consolidate your debt

Reduce your monthly payment

Payoff your mortgage sooner

REFINANCING SAVES YOU MONEY

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Should You Refinance?

There are several things to consider before making the decision to refinance your mortgage.

Refinancing is pointless if it’s not going to save you time and money. It’s not a choice to be taken lightly so w e re c o m m e n d d o i n g s o m e research and preparation first. We’ve put together some information to help get you started. Take a few moments to review the materials in this e-book and then contact one of our experts. We’ll answer any questions you may have and help you decide if refinancing is right for you.

DO YOU QUALIFY FOR REFINANCING

Before considering whether you should refinance your mortgage, it’s a good idea to find out if you would even qualify. It takes more than a good payment history to qualify for a refinance. The value of your home and your current financial circumstances are also important factors in determining whether you can refinance.

Value of your home compared to mortgage amount

Having equity in your home is very important when it comes to applying for refinancing. Equity simply means that the value of your home is more than the amount owed on your current mortgage. Banks are more likely to approve loans for homeowners who have equity. However, not having equity does not automatically mean that you won’t qualify. There are other options thanks to government programs which we’ll describe below.

Determining how much equity you have in your home, if any, is a quick and easy calculation. Just subtract that amount owed on your current mortgage from the current value of your home. For example, if your home is valued at $270,000 and you have $220,000 left on your mortgage, then you have $50,000 in equity. (Sites like Trulia and Zillow can give you a ballpark figure on your home’s value if it’s been a while since you’ve had a home appraisal done. You can also check the listing prices on homes that are currently for sale or recently sold in your neighborhood.)

Your financial situation

If your financial situation has changed since you obtained your home loan, you may be able to refinance. Has your income or your credit score increased? Refinance your home at a lower interest rate. If your credit score hasn’t increased, there are several things you can do to improve it.

Start by obtaining a copy of your credit report to find out exactly what is on it. You’re entitled to one free credit report per year which you can get by visiting AnnualCreditReport.com. (Keep in mind that this report will only give you information about items that affect your credit score but it won’t give you your actual score. You can obtain your credit score by contacting TransUnion, Equifax, or Experian.)

Once you know your credit score, work on improving it by doing the following:

Pay off accounts in collections. If you have an account that has gone into collections, make arrangements to pay it off. Some collection agencies may work with you on setting a monthly payment or they may offer to lower the total amount owed if you are able to make a lump sum payment.

Avoid making late payments. It goes without saying that paying your bills on time serves as evidence that you are a trustworthy loanee. The longer you go without making late payments, the more your credit score will increase.

Keep your accounts open. Many people are under the mistaken impression that closing accounts completely will raise their credit score when, in fact, the opposite is true. Keeping accounts open and paying them on time actually raises your credit score.

Know your limits. Don’t run up your credit card debt to the point where you’re reaching your credit limits. Maxing out credit cards will lower your credit score. Try to limit your credit card usage.

You can find more ways to improve your credit score on the myFICO.com website.

As a result of the recent housing crisis, the federal government stepped in to assist homeowners by developing programs that would allow people to refinance their mortgages, saving them from foreclosure. Depending upon your financial situation, you may qualify for refinancing under one of the these government sponsored programs.

GOVERNMENT

refinanceSPONSORED

HARP The Home Affordable Refinance Program is designed to help homeowners who are current on their mortgage payments but have been unable to qualify for refinancing because the value of their home has declined. In order to qualify for this program, your home loan must be backed by Freddie Mac or Fannie Mae and sold to Freddie Mac or Fannie Mae before May 31st, 2009. You must be current on your payments with a good payment history for the past 12 months and your home’s loan-to-value ratio must be more than 80%.

For homeowners with loans insured by the FHA (Federal Housing Administration), you may be eligible for the FHA’s Streamline Refinance Program. In order to qualify, you’ll need to have a 12-month history of on-time payments. Not sure if your loan is insured by the FHA? Check your statements. If you’re paying a monthly insurance premium, listed as “MIP”

on your statement, you have an FHA-insured loan. You’ll also see a 13-digit HUD number on your closing documents.FHA

STREAMLINE

•IS REFINANCING RIGHT FOR YOU

Finding out if you qualify for refinancing your home loan is just the first step in the process. The next step is deciding if refinancing is a good idea for you. Lowering your monthly payment sounds great but what about the added costs of refinancing? Is it going to be worth it? If the amount you spend is going to end up being barely more than the amount you save, probably not.

Even though refinancing is supposed to save you money, it’s also going to generate numerous fees. There may be application fees, appraisal fees, attorney fees, additional insurance expenses including Private Mortgage Insurance and title insurance, and more.

Here’s what you’ll need to do:

Figure out how much you’ll save on your monthly payment. Estimate your monthly payment after refinancing and subtract it from the amount of your current payment.

Calculate closing costs and figure out your “break even” point. Divide the amount of your monthly savings by the amount of your total closing costs to see how long it would take you to break even.

Compare the amount of time it’ll take you to break even to the amount of time you’ll be living in the home. If you plan on living in your home longer than the time it takes you to break even, then refinancing is worth considering. Otherwise you may just end up losing money.

What type of loan should you consider

Deciding which type of mortgage refinancing loan is right for you depends on several factors. One of these factors is the amount of time you’ll be living in the home. Many homeowners who choose to refinance decide to go with a fixed-rate mortgage (FRM), but a fixed-rate mortgage isn’t the best option for everyone.

If there’s a chance that you will be moving out of the home within the next 7 years, an adjustable-rate mortgage (ARM) may be a better choice. An adjustable-rate mortgage typically comes with a lower interest rate but that rate is subject to change so it’s important to keep in mind that you may end up with a higher interest rate if you decide to stay in your home longer than the time period established in your mortgage.

If you intend to stay in your home for more than 7 years, a fixed-rate mortgage (FRM) may be the better option for you. Fixed-rate mortgages are typically set for 10, 15, 20, 25, or 30 years with 30-year FRMs being the most popular. Knowing how long you’ll be living in your home will help determine which type of refinancing loan works best for your situation.

ARM FRM

Best R

ates

Guarante

ed

HOW DO YOU GET THE BEST RATE

So you’ve figured out that you’ll probably qualify for refinancing and you’ve decided which type of loan is best for you, so the next step is finding the best rate to save you the most money. After all, saving money is one of the reasons you’re considering refinancing in the first place, right? But be careful about falling for those ads from lenders promising you shockingly low interest rates. What they’re advertising may not be equal to what I available to you.

Remember: You’re allowed one free copy of your credit report per year through AnnualCreditReport.com and you can visit MyFICO.com for tips on improving your credit score.

Having a good credit score makes a big difference when it comes to getting a low interest rate on your mortgage refinancing. Plan ahead by finding out what your current credit score is and doing

whatever you can to raise it. The higher your credit score is, the lower your interest rate will be. Aim for a credit score

of 740 in order to get the best interest rate possible. If your credit score is less than 740, get a copy of your

credit report and take a look at what you can do to change it.

HOW ELSE CAN YOU SAVE

Avoid Private Mortgage Insurance

Aside from getting the best rates, there are other ways to save money and lower your monthly mortgage payment through refinancing. Perhaps your financial circumstances have improved since you first bought your home. If that’s the case, you may be able to stop paying that monthly Private Mortgage Insurance (PMI) that you’d been paying every month. In order to erase that monthly PMI payment, you’ll have to pay a larger principle payment in order to get that loan-to-value ratio down to less than 80 percent. If your LTV is more than 80 percent, plan ahead and set aside some savings to put towards the principal. This will increase the possibility of avoiding a PMI payment.

How to calculate your LTV ratio: As the term indicates, the LTV ratio is the amount of the home loan divided by the value of the home. Here’s an example: Your home is valued at $210,000 and you’re taking out a $175,000 mortgage on it. Dividing $175,000 by $210,000 gives you a LTV ratio of about 83 percent.

Avoid Fees and Penalties

Earlier we mentioned the possibility of hidden or higher fees. Another possibility that could affect how much you save by refinancing is a prepayment penalty. Read through your mortgage documents and find out if you’re going to be assessed a penalty for paying off a mortgage before the time indicated. If your mortgage does include a prepayment penalty, it may be low enough to not have much of an impact or it may have even expired by the time you’re ready to refinance.

WHAT’S NEXT

The past few years have been a busy time for refinancing. Being prepared can make the process move along more quickly and more smoothly and it can prevent any possible delays. By knowing what you’ll need and making sure that everything is completed, signed, and submitted, you can save yourself some time and money.

Here’s what you’ll need to do:

Your lender will arrange a home appraisal once your loan is complete. After all documents have been received, you’ll receive an initial approval from your lender. This approval may include additional conditions that need to be met before the process moves to the “clear to close” phase. Once the loan has been declared clear to close by your lender, the documents will be sent to the title company or escrow and a closing will be scheduled. Once that closing package has been completed, your loan funding is done!

Sign and return paperwork

Send all documentation to loan officer

Review loan approval

Provide final docs to title company

Close on the loan

Receive funding