Archive for the ‘Refinance’ Category

Is It Time to Refinance An FHA Mortgage?

October 11, 2019

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.

Home equity reaches all time high

October 8, 2019

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.

Should I Refinance Now?

June 20, 2019

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.

 

Cash Out Refi or HELOC – Key Questions

October 25, 2018


 

 

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.

The Simplest Loan Around – Part 3

September 8, 2016

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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!

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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.

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The Simplest Loan Around – Part 2

August 12, 2016

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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.

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Here’s a quick summary of the benefits:

  1. 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.
  2. No employment verification is required with the streamline refinance.
  3. No income verification is required.
  4. 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.

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The Simplest Loan Around – Part 1

August 4, 2016

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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:

  1. It is only for people with an FHA mortgage.  If you have a conventional mortgage, this does not apply.
  2. It is only for people who are current on their FHA mortgage.  If you are behind on your payments, you don’t qualify.
  3. 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.
  4. 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.
  5. 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.

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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.

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How to pay for home renovations

April 19, 2016

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It’s the spring, which means it is time for a home remodeling project. Here’s the big question… how am I going to pay for that new kitchen?… swimming pool?… addition to the home?… etc.

If you don’t have the money on hand, and there is equity in your home, there are two ways to go about getting money to pay for a remodeling project.

Cash Out Refinance – with interest rates as low as they are, a refinance in general could be in order. While doing the refinance, look into a cash out refinance. Depending on the amount of money being taken out, the interest rate is only slightly higher. The max loan to value right now on a cash out refinance is 80% of the value of the home. For example, let’s say the home appraises for $400,000, and the balance on the current mortgage is $220,000. Taking 80% of the $400,000 value is $320,000. When you pay off the balance of $220,000, then there is $100,000 left over to go towards the project.

You are not required to take the full 80%. Maybe the kitchen remodel is only $60,000, so only borrow $280,000 in our example. There’s no reason to do the full amount if it isn’t needed. The rate is fixed for the life of the loan if choosing a fixed rate mortgage option.

If your current rate is over 4.500%, then this could make a LOT of sense as you could take cash out AND get a lower interest rate. A complete win-win.

Home Equity Line of Credit – this is a second mortgage and a bit of a different option. Let’s say you have some money on hand and are unsure of the total cost of the project. Instead of needing a majority of the money, you may only need a little more than what is in your investment accounts. In a situation like that, then a home equity line of credit (called HELOC) may be the way to go.

Using a HELOC, interest is paid only on the amount being borrowed. You can simply open the line and have the money available, like a credit card, and use the line when needed. The total loan to value of both mortgages combined can usually go up to at least 85% of the value of the home.

A potential draw back here is the interest rate. The rate floats with Prime Rate (determined by the Federal Funding rate). Depending on the amount of the equity line, credit scores, etc., the rate is normally “Prime + 1.” With Prime Rate being 3.25% + the 1%, the HELOC rate would be roughly 4.250%. The rate can go up/down depending on what the Feds to with the Federal Funding Rate. If using a no closing cost HELOC, the rate may be more than “Prime + 1.” One other drawback is the fact most HELOCs come with a prepayment penalty.

How to choose between the two? Here are some things to consider:

  • Choose a cash out refinance if you have a firm idea of the project cost, knowing you will need all of the money (no reason to pay interest on money you take out from the refinance if it won’t be used), and if the interest rate will be about the same or better.
  • Choose a HELOC if you are unsure of the cost of the project, already have some funds available, and have a really low rate on the first mortgage and don’t want to lose that rate by doing a cash out refinance.

Trying to decide what is right for you? Ready to apply and get going? If the home is in the state of Georgia, contact me today. We can discuss the pros and cons of a cash out refinance versus a HELOC and choose the one that is best for your situation. Once this is done, hello new kitchen/bathroom/addition to the home!!

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Time to Refinance?

March 3, 2015

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In recent weeks, interest rates dropped to their lowest levels since May 2013, causing the refinance business to jump significantly.  Interest rates have climbed a bit since late January, but for some people, now is still a great time to refinance.  So how do you know if refinancing may help you?  If any of these conditions apply to you, you may want to consider refinancing:

  1. If you have a conforming loan (not FHA and not jumbo) and you can lower your rate by 0.5%.
  2. If you have a FHA loan obtained between 2010 and January, 2015 – even if you obtain a new FHA loan, FHA mortgage insurance premiums have declined significantly – this may lower your payment significantly.
  3. If you pay mortgage insurance on your home loan, you can look to refinance to a lower rate and possibly drop your insurance payment depending on how much your home has appreciated since you bought it.
  4. If you have a jumbo loan and can lower your rate by 0.25%.

To refinance you will incur closing costs.  Even if the closing costs are rolled into the loan balance you still ultimately pay those costs over time.  So you need to determine if your monthly savings is worth the closing costs you will pay.  We calculate your breakeven point in months by dividing your refinancing costs by the savings on your monthly payments.

You need to ensure that refinancing will benefit you financially.  Consider this question first…”How long do you plan to stay in this home?”  If your breakeven point is after you think you will move out of the home, it’s probably best for you not to refinance.  If your breakeven point comes before the date you think you will move, then you should consider refinancing.

Not sure if refinancing is a good option?  That’s OK.  Contact us here at Dunwoody Mortgage.  We will ask you a few questions, and then we can determine your monthly mortgage savings and calculate your breakeven point.  We can discuss your options and, if refinancing makes sense for you, we will pursue it and give you the best possible rate, competitive closing costs, and outstanding customer service.  You have nothing to lose.

Don’t miss this opportunity.  Call us now before rates go back up!!

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Last year to use HARP

January 6, 2015

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As posted on The Mortgage Blog in late 2014, interest rates are still around their lowest levels from 2014. That’s great news for home owners who are upside-down on their loans.

The Home Affordable Refinance Program, or HARP, is entering its final year (well, unless Congress extends the program again). HARP allows homeowners who are underwater to refinance into a lower rate. Combine a loan program for underwater homeowners with low rates, and it is a win for homeowners. How do you qualify for HARP?

If the home was purchased and securitized by Fannie Mae or Freddie Mac before June 1, 2009, AND the monthly mortgage payments have been paid on time for the past 12 months, you probably qualify for HARP. It doesn’t matter if you have a second mortgage or pay monthly mortgage insurance on your loan, you could still qualify for HARP.

You might be thinking… “I’m really underwater. I can’t qualify.” Just know homeowners can be way, WAY underwater. There is no limit.

Also, homeowners who did not have private mortgage insurance (known as PMI) on their loan initially can still refinance even without 20% equity in their home today. There would not be PMI on their new loan.

If you missed the historically low rates of 2012 and 2013, you may want to act quickly.  Rates are unlikely to return to those historic low levels, and they at the just about the lowest levels seen since May 2013.

To get started, contact me to talk about the pros and cons of HARP. Together, we can determine if you qualify for the HARP program.   It’s the best way to lower monthly payments when you owe more than your home is worth.  Don’t miss this opportunity!

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