Mortgages rates are higher now than their all time lows. This doesn’t mean everyone has missed the window of opportunity. Sure, rates are higher, but they are still very low.
Overall, about 20% of homeowners with pre-pandemic mortgages, have refinanced per a recent study by Bankrate.com. What about the rest?
Close to half have yet to consider refinancing
About a quarter have considered, but have yet to actually refinance.
What are the reasons why people do not refinance?
some say they would not save enough money. Makes sense. To me, one needs to begin saving over $100 a month to make a difference. With the rise in costs of just about everything, an extra $100 per month can be valuable.
just about a quarter of the respondents saying it is too much of a hassle with all the paperwork. Sadly, I agree and can’t do much about the paperwork portion of the transaction.
unsure of how long they will remain in the home
This last point wasn’t in the Bankrate.com survey, yet to me, it is the most important one to consider. If the plan is to move out in two years, and the monthly savings is $400 or more, a refinance would make sense. The homeowner would break even* on the cost of the refinance well inside of the two year period. Let’s say the savings was just over $100 a month, but the plan was to stay in the current home for at least 10 years. Again, the numbers show this would also make sense.
*Break even means the number of month it takes to recoup the cost of the refinance. Take the closing costs of the loan, divide it by the monthly savings to get the number of months for a break even point.
How long do you plan to remain in the home? If you answer this question, you’ll answer many more including whether or not to refinance.
Yes, rates are still low. While it probably makes sense for many homeowners, it may not for everyone. Want to find out if a refinance makes sense for you? If the property is in Georgia, contact me today, and we’ll sort out if a refinance makes sense for your situation.
Great news if you have a loan backed by Fannie Mae… RefiNow is here!
This is the refinance program I mentioned last month. Fannie Mae is up and running with Freddie Mac looking to start their version in late August. While there are some slight differences between the two, the main tenets are the same.
The programs are designed to encourage eligible low-income borrowers to refinance and lower their interest rates and monthly mortgage payments.
The property must be a single-unit home with no late mortgage payments in the past 6 months (no more than 1 in the past 12 months)
The loan must be seasoned for 12 months prior to loan application for the refinance
The Borrower’s qualifying annual income cannot exceed 80 percent of the local area median income (AMI). As of this post, there is not an official lookup tool for RefiNow regarding AMI. That said, Fannie Mae does have an AMI lookup tool for another loan program they offer. Go here for an AMI lookup tool.
Debt to income ratio can be as high as 65% (this is way higher than normal)
The new loan to value cannot exceed 97 percent
In the metro Atlanta area, most areas have AMI at/around $65,000. Depending on other debt held by a home owner, a potential loan amount that would qualify for this could be in the $400s.
Thinking about refinancing but still haven’t? Why wait? Contact me today. Whether one qualifies for RefiNow or just a normal refinance, rates are still very low. In just a few minutes, we can do an analysis of your current loan versus a new one and see what makes sense for your situation.
The Federal House Finance Agency announced a new refinance product, which should be available sometime this summer. This program focuses on low-income borrowers with single-family mortgages backed by Fannie Mae and Freddie Mac.
Under the new refinance program, lenders must ensure that the borrower saves at least $50 a month in their mortgage payments while simultaneously dropping their interest rate by at least 0.500%. The program also requires lenders provide a $500 credit for appraisals if the borrower is not eligible for an appraisal waiver.
The program will be called RefiNow, and will even include waiving the controversial adverse market refinance fee (introduced in the fall on 2020 by Fannie Mae/Freddie Mac) for borrowers with loan balances at or below $300,000.
At least a half a point drop in rate…. either no appraisal OR a credit to cover the appraisal… this all sounds great! How does one qualify?
To qualify for RefiNow, a borrower must:
have a loan backed bay Fannie Mae or Freddie Mac
have an income at or below 80% of the area’s median income
be current of their payments for the last six-months (with no more than one payment missed in the last 12)
the max loan to value of 97% (meaning, there must be 3% equity)
a credit score of 620+
What does 80% of the area’s median income mean?
In the metro Atlanta area, most of the median area income is $82,000. Meaning, to qualify the borrower’s income must be at/below 80% of this amount (roughly $65,000). This is not a refinance program for someone with a $500,000 loan making six figures. It is indeed targeted to lower income borrowers.
Fannie Mae has a lookup tool for their Home Ready loan program. I expect they will have something similar for the RefiNow program. To check out to see the median area income for your property, you can use the lookup tool:
Again, this is not the official “RefiNow” lookup tool. It should give someone an idea of what their max income can be and still qualify for this program.
RefiNow – Yet another exciting way for homeowners to take advantage of super low rates for a refinance coming soon to a Loan Officer near you.
As discussed previously, using an FHA loan to buy a home makes sense for home buyers with relatively low credit scores and limited down payment funds. FHA loans offer very attractive pricing for these home buyers.
Interest rates have now fallen to their lowest level in three years, so it may be time for current FHA mortgage holders to consider a conventional mortgage refinance. The interest rate savings may not be huge, but changing from FHA mortgage insurance to private mortgage insurance could bring significant financial benefits.
I’m working with a couple now (we’ll call them Jack and Diane) who bought their home in 2017. At that time, their qualifying credit score was in the mid-600’s and they had just enough cash for the FHA minimum down payment. This was an ideal scenario for an FHA mortgage.
Fast forward to 2019 – their credit scores have increased and home appreciation in their neighborhood has given them more equity. A conventional loan now makes sense for their updated situation. They can refinance to a new interest rate that is just 0.25% less than their current rate. Normally such a small monthly savings, by itself, does not justify the cost of refinancing.
In addition to the interest rate savings, they will also save money every month with lower mortgage insurance payments. Switching from their FHA loan to a conventional loan will lower the mortgage insurance monthly premiums by about $120. Their total monthly savings equal $160, and their refinance has a break-even point of just over two years. Considering the interest rate savings plus the mortgage insurance savings makes their refinance worthwhile.
An added benefit is that their new private mortgage insurance will cancel in a few years (unlike the FHA insurance which is permanent), increasing their monthly savings to about $200. So, Jack and Diane will realize this bonus savings in just a few years.
Ultimately, home buyers who used an FHA loan two or three years ago may reap big rewards from a conventional refinance now, assuming their property value has increased.
Ron moved into your neighborhood in the last three years or so. At the neighborhood Halloween party, ask Ron if he has heard of an FHA mortgage. If he replies, “Yes, that’s the type of loan I have,” ask him if he would like to lower his monthly payment. Then connect Ron with me. We will quickly determine whether moving to a conventional mortgage can help Ron financially.
The amount of equity in US homes now exceeds the levels seen before the housing crash. Available equity in the US is just over $6 trillion, which is 25% higher than the peaks seen during the housing boom.
Black Knight Inc uses data and analytics to provide forecasts for the mortgage and real estate industries. Their surveys indicate just over half of home owners have rates at 0.750% or higher than current rates. The average home owner has $140,000 in equity in their homes.
Meaning… homeowners have enough equity to avoid PMI (or get rid of PMI if currently on their loan) and lower their monthly payment by moving to a better interest rate.
With rates at yearly lows, and lots of equity in homes, it is the right environment for a refinance. So… should you refinance?
The main question I ask clients is “how much longer do you plan to remain in the home?”
If the homeowner is looking to move in the near future, then it rarely makes sense to refinance.
If the monthly savings begins to exceed $100 per month and a break-even point is around 2-3 years, then a refinances begins to make more sense.
Another question I get is “when should I consider refinancing?” It is a great question, and my answer is simple… if the current interest rate is 0.500% or higher than your rate, then at least have a conversation.
Own a home in Georgia and your interest rate is at or over 4.500%? Wondering if now is a good time to refinance? Contact me today. In just a few minutes, we’ll put together some numbers to see if a refinance could make sense. A credit pull isn’t required for this conversation.
Mortgage rates are as low as they’ve been in a couple of years. There is more equity than ever in US homes. If you are planning on remaining in your home for 2+ years, now may be a great time for a refinance.
As recently reported in The Mortgage Blog, mortgage interest rates have dropped to their lowest level in over two years. The last time rates were consistently this low was just before the 2016 Presidential election. For people who purchased homes since then, it may make sense to refinance now. So how do you decide if a refinance is right for you?
I read one article from a major think tank stating you should refinance for a rate that is a specific amount lower than your current rate. I believe that is a bit simplistic and you should crunch numbers in more detail. I recommend comparing the financial benefits against the cost of refinancing – the total amount you can save each month versus the refinance cost.
With a rate / term refi, you will save by lowering your monthly interest payments and, possibly, by lowering or eliminating private mortgage insurance (PMI) payments. I recommend you focus on the dollar savings. A 0.5% interest rate change on a $100,000 loan will save you much less per month than the same interest rate change on a $400,000 mortgage. Eliminating or reducing PMI payments can provide significantly lower monthly payments. To eliminate PMI, you must must have 20% equity. Perhaps your home’s value has increased since you bought it. You can capture this higher value as equity in the new loan using a new appraisal value. If the appraisal shows you have greater equity, even if it’s less than 20%, you may see your PMI payment reduced, perhaps substantially.
How do I analyze the savings? I estimate a new monthly payment based on the lower interest rate and potential PMI changes and compare this rate versus their current payment. Then I divide the refi closing cost by the monthly savings to get a “break even” point. If the monthly savings break even on the closing costs in three years or less, I typically recommend that the client pursue the refinance. Why three years? It seems most people have a general idea of their plans for the next three years or so. Anything further than that becomes a little murkier. I’m currently working with a client who has a $335,000 loan. I estimate a refinance will save her $150 per month and will “break even” in about 22 months. That seems like a wise financial move to me.
Another option to consider is a cash out refinance. Is there a home project you want to do? Perhaps a kitchen or bathroom renovation? I have clients using their home equity and lower interest rates to take cash out for a project, and still have the same payment (or even a better payment) than they have now.
Do you know someone who bought a Georgia home in 2017 or 2018? Ask them what they would do with an extra $100 per month. Then refer them to me. I’ll run the numbers to determine whether refinancing is a wise move.
In the last post we covered the fact that American households have over $6 trillion of accessible home equity and described the two main ways home owners can access that equity – a cash out mortgage refinance and a home equity line of credit (HELOC). I promised to make my recommendations on which option is best for a home owner, based on a set of questions. You will find my recommendations below:
Question #1: Do I want a fixed payment, or can I live with changing interest rates and payments? Recent economic conditions show rising interest rates. HELOC accounts typically carry a variable interest rate that increases as market interest rates increase and decrease as the market decreases. Borrowers obtaining a cash out mortgage refinance often secure fixed rate mortgages, so the payments do not change over time. Which do you prefer?
Question #2: Am I disciplined to proactively pay down my loan over time, or will I only make minimum payments? HELOC accounts typically require interest-only payments. If you only plan to make the minimum payments, you may be surprised in a few years when your HELOC account matures and the bank expects you to pay off the remaining account balance. If you will proactively pay down the balance, you will not have this surprise. Refi mortgage payments fully amortize over the loan term, so your monthly payment always includes a principal component. And when you make the last payment, your original loan balance will be fully repaid. Which option is best for you?
Question #3: How much money do I need, $100,000 for a home renovation or $10,000 for a home repair? In short, if you do make extra principle payments, how long will it take you to repay the loan balance? The lower the amount and the faster you repay it, the less likely increasing interest rates will burst your budget. If you need a renovation amount of cash, selecting the long-term fixed mortgage rate may be a better option since it provides a fixed payment over a long time period.
Question #4: Why do I need access to my home’s equity? In my opinion, home renovations, repairs, and debt consolidations serve as good reasons to tap home equity. These are steps that ultimately increase your equity or improve your overall financial position. To me, that’s a wise use of your home equity. On the other hand, tapping home equity for expendable items or vacations may not be the best use of a home’s equity.
Do you have a friend pondering whether to access their home’s equity? Please refer them to me. I will ask them these questions (and more) and coach them to make the best decision for their own unique circumstances.
Continuing the FHA streamline refinance theme… Here’s an example. I’m currently talking with Confidential. Confidential is self-employed. Confidential’s spouse, Anonymous, recently took a new all-commission sales job.
With a standard mortgage, the income and employment verification for Confidential and Anonymous would be very tedious at best, and they likely may not qualify. Underwriters want to see a 24 month history of income for self-employed persons. And they will average the 24 month income to determine the borrower’s current monthly income. That hurts self-employed borrowers whose incomes are growing. But those normal underwriting concerns do not apply to the FHA Streamline Refinance!
The interest rate on Confidential and Anonymous’ current mortgage is 4.75%. That is high by today’s standards. The good news is that they bought their home with a FHA loan several years ago. I quoted Confidential and Anonymous a new FHA interest rate at less than 3.5%, and we expect to lower their monthly payment by over $220! Given the closing costs for the loan, this refinance will pay for itself in less than a year. After that, they are saving over $2,500 per year!
I’m not worried about this loan being approved in spite of the fact that Confidential and Anonymous are self-employed and they cannot provide the standard 24 month income history. And we don’t have to fret about an appraisal value. They have made all FHA mortgage payments on time, and this refinance will reduce their payment by over 15%. They qualify for what might be the easiest loan around – the FHA Streamline Refinance.
So how do you determine if a refinance is right for you? There are many considerations, but we have a couple of rules of thumb: (1) If you can lower your payment by $100 per month or more, and (2) if the refinance will “pay for itself”* in 36 months or less, then you may want to investigate refinancing options. (*Divide the loan closing costs by the estimated monthly savings to calculate how many months will pass before the savings cover the entire cost of the refinance. If this time period is 3 years or less, then refinancing may be a good option for you.)
If you want to lower your current monthly payment by taking advantage of current low, low mortgage interest rates, contact me here at Dunwoody Mortgage. I will take the time to help you understand all of the options available to you, and I will coach you to make the best financial decision possible for you and your family.
In the last blog post, I introduced the FHA “streamline” refinance loan. These loans are the fastest, simplest way for FHA mortgage holders to refinance to today’s low, low rates.
The streamline program simplifies home refinancing by waiving the documentation typically required for a mortgage, including income and employment verification, credit score verification, and an appraisal of the home. Homeowners can also possibly use the program to reduce their FHA mortgage insurance premiums (MIP). Like an Olympic swimmer reduces friction by “streamlining” when underwater, the FHA streamline refinance offers much less resistance and effort than a regular purchase loan.
Here’s a quick summary of the benefits:
No appraisal is required – FHA will use your original purchase price as your home’s current value, regardless of what the house is worth today.
No employment verification is required with the streamline refinance.
No income verification is required.
No detailed review of your credit report is performed. If your score is 600 or higher, you qualify.
So to sum up the benefits, you can be (a) out of work, (b) without income, (c) have a low credit score, and (d) be underwater on your home mortgage and you can still qualify for an FHA streamline refinance.
Now this sounds crazy. Why would they do this? Well remember, to qualify, you must already own the home and have an FHA mortgage. We are not qualifying you to take on a new mortgage payment for a new house. The FHA is already committed to insuring your home mortgage.
Therefore, it is in the FHA’s best interest to help as many existing mortgage holders as possible lower their payments. By lowering payments, they will lower the default rate. So this program helps the FHA, but it also helps the borrower who can lower his monthly payment.
In the next post, we will review example scenarios where this type of loan can really help the homeowner. But for now, if someone you know in Georgia has a FHA mortgage with an interest rate of 4.00% or higher, have them call me to discuss a potential refinance. We’ll run the numbers together to make sure it’s a good financial move for them.
It’s a fun time to be a mortgage lender. Interest rates are hovering near their historic lows. They’ve been close to rock bottom for a while, but this Brexit situation has pushed them back to almost the lowest level in history.
Right now, for borrowers with a credit score of 680 or higher, I can quote an interest rate in a range right around 3.25% for a 30 year fixed rate FHA mortgage. To me that is amazing.
That rate applies to both purchases and refinances. But it gets even better for refinances….if you have an existing FHA loan that you want to refinance, we can do a “streamline” refinance that is much easier than a standard loan.
So what is this awesome FHA streamline refi program? Here are the details:
It is only for people with an FHA mortgage. If you have a conventional mortgage, this does not apply.
It is only for people who are current on their FHA mortgage. If you are behind on your payments, you don’t qualify.
It is only for people who have no more than one late payment in the last 12 months. If you have multiple late payments recently, you don’t qualify.
It can only be used if it lowers your monthly payment by 5% or more. And by monthly payment, we are talking about principal plus interest plus mortgage insurance. Escrow is not considered.
If you have previously refinanced an FHA mortgage on your home, 210 days must have passed from the date you closed your last refinance before you are eligible.
So that’s what it takes to qualify, what’s the big deal? What makes this streamline program so special?
In short, these loans are the fastest, simplest way for FHA mortgage holders to refinance to today’s low, low rates.
The streamline program simplifies home refinancing by waiving the documentation typically required for a mortgage, including income and employment verification, credit score verification, and an appraisal of the home. Homeowners can also possibly use the program to reduce their FHA mortgage insurance premiums (MIP).
I’ll provide more details in my next post, but keep this in mind for now, if you or a friend / family member bought a house before January 2012 or in the second half of 2013 / early 2014, ask yourself or the other person (1) do you have an FHA mortgage and (2) have you refinanced that mortgage?
If their answers are “Yes” and “No,” tell them you know a mortgage lender who might be able to save them thousands of dollars on their home loan, and can make the process really easy.
Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services and a writer for “the Mortgage Blog.” If you would like to be a guest writer for "the Mortgage Blog" please contact Clay for details.
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