Many homeowners grow tired of high monthly mortgage payments or may find themselves unhappy with the rate they’ve locked in when they purchased their home. Moreover, other consumers find themselves in need of the cash that they have invested in their home over the years. Fortunately, there is a way to achieve your home financing goals, and that’s with a refinance from The Federal Savings Bank. Read on for answers to seven questions that our customers often ask about the refinance process.
There are two main types of refinance home loans. Your loan will either be a “cash-out” refinance or a “rate-and-term” refinance, depending on your needs when you apply. If you are seeking to borrow more money than you currently own on your home loan (for example, if you need cash to finance your child’s education, or for a down payment on a second home), then you will want to ask your loan officer about a cash-out refinance.
A rate-and-term refinance, on the other hand, is intended to help you lower the monthly loan payments on your home mortgage. You may be qualified to leverage the hard work that you’ve already put into paying off your home loan, by refinancing at a lower interest rate.
When you’re applying for any type of home loan, including refinances, it’s a good idea to gather the following documents so you have them on hand when your lender asks for them:
While access to cash or lower mortgage payments are attractive reasons to refinance, it’s normal to ask whether the immediate cost to refinance is worth it.
The place to review your closing costs is on your loan estimate, where they are broken down item by item. Your refinance lender will, by default, require you to shoulder many of the costs commonly associated with closing home loans. You may expect to pay for title fees, appraisal fees, and fees paid to check your credit.
Specialty government-backed home loans like Federal Housing Administration (FHA) mortgages and Department of Veteran Affairs (VA) home loans may waive some or all these costs in favor of a standardized fee set by the agency. Ask your loan officer if you are eligible for a streamline refinance, which might let you waive costs like the appraisal entirely and save yourself more money in the long run.
According to the Consumer Financial Protection Bureau, Private Mortgage Insurance (or “PMI”) usually kicks in “if you take out a [loan] with a down payment less than 20% of the purchase price”. This exists to protect the lender from a loss in the possible event you default on the loan, and it usually takes the form of an additional premium paid monthly or annually to a third party. It is a commonly cited reason for those potentially struggling to make their monthly payments.
A home loan from the VA might instead guarantee your refinance, eliminating the need for PMI. The Federal Savings Bank proudly offers VA refinances to eliminate PMI for those who qualify. If, for example, you enlisted in the Navy after purchasing your home, you may be eligible to refinance your existing home loan at the same time you become eligible to take out a VA purchase loan on a new home.
You might already know if you qualify for a VA mortgage on your home. These low-cost mortgages, backed by the U.S. Department of Veterans Affairs, are a proud American tradition dating back to the first GI Bill, and are only available for qualified veterans, active duty and their surviving spouses. Remember, you may apply for a VA loan on a primary residence only, though you need not already have an active VA loan on your home if you’d like to refinance into a new VA loan.
Learn more about Who Qualifies for a VA Home Loan.
Tools like Zillow.com are great for an educated guess at the current value of your home. When you apply for a home loan, you may be required to pay for an appraisal of your home. A third-party inspector will come and inspect your home, then issue a report that informs you and your lender how much they believe your home is worth.
Once you know the current value of your home, you and your loan officer will use the remaining balance on any existing mortgage to help determine how much cash you may “take out” of your home. Remember not every home loan will allow you to borrow 100% of your home’s value.
Whatever your situation, let an experienced professional in home lending advise you about your options. Get in touch today and let a loan officer from The Federal Savings Bank help you evaluate your position as a homeowner and consider the potential route to access your home equity.
Subject to credit approval. Terms and conditions may apply. Subject to VA eligibility requirements. Property insurance is required on all loans secured by property.
Down payment assistance requirements are based on the mortgage insurer or guarantor’s guidelines. Borrower may fund down payment and closing costs. Down Payment Assistance Program, which assist eligible homebuyers with purchasing a home. Down payment assistance programs are not eligible for all potential homebuyers.
This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information on financial planning or investment advice, consult a registered investment advisor or financial planner. For tax advice, please consult a tax professional.