 Helpful
Real Estate Tips
Since
so many people are taking advantage of the low interest rates by
refinancing, I think this article would be a good start for the
new year.
 SOME “FOOD” FOR THOUGHT!
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Whether you are planning on staying
in your home or selling your home with the interest rates
rapidly falling you can refinance two or even three times
within the year. If you can keep reducing your monthly
mortgage payments without incurring any or little refinancing
costs, go for it!
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Most lenders are swamped with loan
applications for refinancing. The refinancing of your home may
take four to eight weeks. Plan to be patient.
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Most appraisers are also swamped.
There may be a delay in your loan process. To refinance your
home it is required with most lenders to have an appraiser
evaluate your house or condo for the current market value.
WHEN SHOULD YOU REFINANCE YOUR HOME LOAN?
1)
Reduce your monthly payment amount with a lower interest
rate.
2)
Refinance your mortgage and receive some cash for
improvements, college tuition, a trip to Tahiti! You can take out
tax-free cash from the equity in your home for personal use!
3)
If you have a second mortgage on your home. Usually second
mortgages carry a higher interest rate, and shorter payback terms.
You can combine the second and first mortgage into one payment. By
doing this you will lessen your monthly payments!
4)
If you would like to pay off other loans such as credit card
payments and auto loans. These types of loans have non-deductible
interest. Mortgage loans ARE deductible interest.
5)
To eliminate PMI (private mortgage insurance) or FHA mortgage
insurance premiums. (Some lenders require these premiums if you
are putting down little or no money as a down payment for your
home). By refinancing with a NEW lender you can eliminate this
payment.
6)
To switch from an adjustable rate to a fixed rate. You should
check with your present lender first. Some lenders will allow you
to switch to a fixed rate for a nominal fee, such as $250.
7)
For remodeling, additions, a pool, starting a business,
expanding onto your current business, etc.
8)
With a lower interest rate you may be able to keep the SAME
monthly mortgage payment or even pay less on a 15-year term
instead of a 30-year term. You will pay off your mortgage loan
quicker and will have more equity in your home each month. Even if
you don’t stay in the home the full 15 years, when you sell it
you will have a lot more profit to put in your pocket! More of
your dollars every month will be going into the principal instead
of more going into the interest you owe.
9)
Just to get rid of your lender because they are rude, don’t
handle your account properly, etc.
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SOME TIPS AND THOUGHTS BEFORE REFINANCING:
HOW IS YOUR FICO CREDIT SCORE?
If you have not checked your credit score (FICO score) in a
while, obtain a copy of your credit report. My personal favorite
is: http://www.myfico.com
the cost is $12.95 and you obtain it IMMEDIATELY. There are other
sites that claim they will give you your score for free, but they
require your credit card number for a monthly update, yearly
service, etc. The $12.95 is a one-time fee and is good for one
month. The site also has a simulator that allows you to try
different scenarios in paying or not paying your bills. If you
have a report run from a “friend”, etc. who has a business you
will end up with an “inquiry” in your credit report.
“Inquiries” can lower your credit score. Most lenders use this
score to evaluate your loan application. If your score is 620 or
above you will probably get a low interest rate.
Okay…Now
that all of that is out of the way…if you are ready to
refinance here goes:
Step 1 – WHAT TYPE OF LENDER SHOULD YOU USE?
BANKS & DIRECT LENDERS:
No “middleperson”. They are lending their own funds to
you. Because of this your costs to refinance are less. Banks tend
to be more stringent in lending money and follow THEIR guidelines.
MORTGAGE BROKERS:
These lenders do not loan their own money. They are
“middlepersons” between the borrower and the lender. They are
“brokers” who “shop” your loan application to find the
best loan terms that YOU have requested. They may be able to find
you a lender that can be more flexible than a bank or direct
lender. If your personal situation requires this, a broker might
also be the way for you to go. The refinancing costs in some cases
will be more than a Direct Lender. You will have to weigh the
interest rate, the terms, and the costs for your personal
situation.
STEP 2 – WHAT TYPE OF MORTGAGE LOAN?
If you plan to remain in your home for more than five years,
a fixed-rate mortgage would probably be best. If you think you may
be selling your home within two years, three years, or five years,
you should probably consider an adjustable rate mortgage (ARM).
With an ARM be sure that your adjustable rate is locked in for the
period of time that you know you ARE NOT going to sell. Example:
If know you will be in the home for at least 2 years be sure your
low interest rate is locked in for 2 years and does NOT adjust!
Step 3 – TRY TO AVOID PAYING LOAN FEE POINTS
Unlike buying a home you can’t immediately deduct your loan
fee points. When you refinance you can only deduct loan fee points
over the 15 to 30 year life of the mortgage. Remember each
“point” equals 1 percent of the amount borrowed. For example:
If you refinance and pay one point (a one percent loan fee to
obtain a $100,000. 30-year mortgage), that point can only be
deducted at the rate of only $33.33 for the next 30 years. You
should consult your accountant if this factor may affect you.
Please read on to Step 4.
Step 4 – TRY TO GET A “LOW-COST OR NO-COST”
MORTGAGE
An alternative to Step 3 is to request the lender’s good
faith estimate outlining your loan charges. This must be given to
you within three days of your loan application submission. Even if
you pay 1/8 percent higher interest rate for your loan WITHOUT a
loan fee, “junk” fees, the savings will probably be
worthwhile.
(FOR STEP 3 OR STEP 4 YOU CAN PROBABLY “BARGAIN” WHICH
STEP YOU ARE WILLING TO TAKE WITH THE LENDER)
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****GOOD LUCK****REMEMBER****
As is my nature and the reason I wrote this book:
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Shop around for the best interest rate, fees, terms, etc.
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Ask questions of the prospective lender but DO NOT let each
one do a credit report on you! You will risk too many
inquiries in your credit report. This can bring your FICO
score down and prevent you from the best terms.
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When you “close”… (Yes you will have a closing just
like when you initially bought your house!), read ALL the
papers you are signing and make sure there are not loan
charges that were NOT disclosed in your lender’s “good
faith estimate”. If necessary, be prepared to WALK AWAY from
the closing table if the lender attempts to do “a bait and
switch” on your loan terms. The deal is on YOUR side. The
lender will probably “fix” the problem right then and
there with a telephone call, etc. rather than lose the WHOLE
deal!
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