When it comes to refinancing your home, there are a few misconceptions that many people have. Before you rule out the possibility of refinancing your home, you might want to learn why it may be easier than you think.
Some of the most common refinance misconceptions are not having enough equity, not being able to afford the refinance, or that it simply doesn’t make sense because of high interest rates.
Regardless of why you think you wont qualify to refinance your home, don’t let what someone told you stop you from taking advantage of some of the great benefits it can provide such as lowering your monthly payment, cashing out to consolidate debt, or getting a lower interest rate.
Here are the most common myths when it comes to mortgage refinance:
- I don’t have enough equity in my home
Most refinancing programs require you to have at least 20 percent equity in your home to qualify. However, new federally chartered programs make it possible for homeowners with little or no equity to refinance their home and take advantage of the benefits that comes along with refinancing. The federal program is called Home Affordable Refinance Program, or HARP, and it has helped many homeowners with low equity reap the benefits of refinancing. Just like any mortgage program, you must meet certain requirements before you can qualify, but if this sounds like your situation, a federally chartered program, such as HARP, may be able to help.
- I can’t afford it
Just like any mortgage or refinance program, there are lending fees involved for processing the loan. The fees vary based on the lender, but the average cost is about 1.5 % of your total loan value. For example, if you have an estimated loan balance of $300,000, you will be required to pay $4,500 in fees. That may seem expensive, but don’t worry, most lenders will let you add those fees to the total loan balance and let you pay over time through your monthly mortgage payment.
- I was turned down before, so there’s no reason to try again
Were you recently rejected for a mortgage application? Don’t give up just yet. Just because you were rejected in the past, doesn’t mean that you won’t ever qualify. If your financial situation has changed since you last applied, then there’s a chance you could qualify. Most applicants get rejected because of low credit, low income, or too much debt. However, if your financial situation changed, then you may be able to qualify. For example, maybe you got a raise at your job, raised your credit score, or paid off a good amount of debt. A change in any of these factors could get you one step closer to qualifying for a refinance program.
- It’s easier to refinance with your existing lender
Many people think that refinancing with the lender that did your original loan is the best option. However, this is not always true. Lenders have different fees, interest rates, and programs that could be better for your situation. Even though you gave your financial documentation to your original lender when you did your first loan, you will still be required to resubmit new documentation that represents your current financial situation such as job status, income verification, bank statements, and credit score. So, the process to refinance your home won’t necessarily be easier with your original lender because you worked with them in the past. You are free to work with any lender you choose and there are many lenders in any given community, so it is smart to shop around and find the one that works best for you
- Interest rates are too high to make refinancing worthwhile
With talks about the rise in interest rates, you might think it is not a good time to refinance. However, in the mortgage industry, things are constantly changing. Regulations, loan limits, and interest rates can be different on any given day so it is smart to talk to a lender and find out what the current state of the industry is. When you secured your first loan you were locked into the interest rate that was available at that time. It might not seem like a significant change, but if you are able to lower your interest rate a full percentage point, it could save you a significant amount of money on your monthly payment when you refinance. There are also benefits of refinancing your mortgage to a shorter term so you can save more money long term on interest and pay your loan off faster. For example, if you refinance from a 30 year fixed rate mortgage to a 15 year fixed rate loan, you could reduce the amount of interest on the loan by $100,000 or more. Your monthly payment will be higher, but your interest rate and total interest owed over the life of your loan will go down.
If you are a homeowner and you’re interested in refinancing your home, give us a call and we will guide you through the process! 702-331-8185