Friday, February 11, 2011

Refinancing a Mortgage

What is a Refinance?

• An existing mortgage is paid off and replaced with a new mortgage
• If a homeowner currently has two or more mortgages, they can all be paid off and combined into one new mortgage
• If the existing mortgage is kept in place, but the terms are changed, that is a loan modification, not a refinance

Rate and Term Refinance

• The new mortgage is paying off an existing mortgage (or mortgages) that was used to purchase the house, OR
• The new mortgage is paying off an existing mortgage that is a refinance of a mortgage that was used to buy the house
• The borrower can get the lesser of $2,000 or 2% of the new loan amount in cash
• Interest rates are lower for rate and term refi’s than for cash-out refi’s

Cash-Out Refinance

• The new mortgage is paying off an existing mortgage (or mortgages) and the borrower is also taking out cash in excess of $2,000 or 2% of the new loan amount, OR
• The new mortgage is paying off a mortgage that was not used to buy the house, OR
• The new mortgage is paying off an existing cash-out refinance
• Interest rates are slightly higher for cash-out refi’s than they are for rate and term refi’s

Subordinating an Existing Mortgage

• If a borrower currently has two mortgages, but only wants to refinance the first mortgage, that is allowed
• However, when the first mortgage is paid off, the second mortgage automatically moves into first lien position, and the new lender will not allow that, SO…
• The lender that owns the second mortgage that is NOT being refinanced must agree to put that mortgage back into second lien position
• They do NOT have to agree to do it

Can Closing Costs be Included in the Refi?

• Yes, they can, for both rate and term and cash-out refinances
• If the closing costs are included in a rate and term refi, it does not become a cash-out refi

Streamline Refinances

• FHA and VA both have rate and term refinance loans that have reduced underwriting requirements
–No income verification (must have a job, though)
–No appraisal
• You must be refinancing an existing FHA or VA loan with a new FHA or VA loan to get a streamline refinance
• The underwriting guidelines change frequently for streamline refi’s, so always check with a competent lender before assuming you can get one

What is the Process for Getting a Refi?

• The application process and the underwriting process for refinances is exactly the same as they are for a mortgage used to purchase a house
• The only difference is that there is no seller or real estate agent involved – only the borrower and the lender

Who Can Sell Me a Refinance Loan?

• Any mortgage broker can sell a refinance loan
• However, if the refinance is an FHA or VA loan, then the lender must be approved by the government to sell FHA and VA loans. Not every lender is approved to sell government loans.

Want to watch our video of this tip? Check it out on our web site by clicking here.

Want to make sure your loan closes? Call the Mortgage Experts at 303-345-3683.

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