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Consumers often are of the opinion that refinancing is a hassle free process which will relieve them of their building financial stress. This however is not necessarily true. If you are not aware of the things to look out for when mortgage refinancing, you could end up taking three steps backward instead of forward. Consumers who are unsure of what to look out for when refinancing should do a bit of research and home work as to evaluate what their options are with regard to refinancing.

Costs Of Home Loan Refinancing

This is one of the most important things to be weary of when refinancing. Below mentioned are the main costs associated with refinancing and how they can wipe out any savings consumers might have made by switching. In spite of the fact that loans may be at all time low rates at the moment, the increase in costs associated with them can be a huge set back to any savings which might have resulted from the refinance.

1. Processing Fees: In order to remain profitable, many lender have commenced predatory practices of introducing additional fees for the exact same amount of work. For instance, consumers are now charged not only an application fees but also processing fees and underwriting fees. When tallied these fees add up to several hundred dollars and can greatly reduce savings. Make sure you check the fees of a few banks before settling.
2. Fannie Mae and Freddie Mac: For all loans which are purchased by Fannie Mae or Freddie Mac, they charge anywhere between 0.25% to 3% of the loan value in fees. If the loan is a cash out refinance they charge another 0.25% to 3%. Make sure that you ask your bank if the loan is going to be sold to Fannie Mae or Freddie Mac, because if it is, be prepared to be hit with the fees.
3. Valuation Fees: With the new regulations in place, from now on whether a deal goes through or not, the valuer who carried out the valuation on the property which is to be refinanced will need to be paid. Hence from now on be prepared to pay the valuation fee upfront as soon as you apply.
4. Mortgage Insurance: As more and more insurance companies start paying attention to FICO scores while calculating premiums, individuals with lower FICO scores can expect to pay more in mortgage insurance. Mortgage insurance is compulsory for anyone who is looking to borrow more than 80% of the property value. With the shift in risk assessment individuals with marginally lower FICO scores have seen their insurance premiums rise.

Dos and Don’ts Of A Mortgage Refinance

Below mentioned are some of the golden rules when it comes down to refinancing. This should help consumers better understand the things to look out for when refinancing:

1. Do not be pressured into refinancing by Debt Collectors.
2. Try and avoid refinancing your home in order to pay off unsecured debt like your credit card debt or medical bills. This is a grave mistake consumers often make as they trade in unsecured credit with little risk for secured debt with a lot of risk.
3. Avoid refinancing over and over again with the same lender. If you are being constantly urged to do this, this can only mean that the lender is trying to maximize profit by urging clients to refinance.
4. Make sure that you do no refinance low interest loans with high interest ones. This will cause you to lose any savings that you thought you might have made. Moreover this will also reduce the equity growth in your house.
5. Avoid scam refinances. There are a lot of predators in the home loan market and it is advisable that you should keep an eye out for them.
6. Be careful of the adage “too good to be true”, because if it seems like it is too good to be true then it probably is.

These are few basic pointers to help consumers understand the things they should look out for when refinancing.

References:

1. Refinancing Dos and Don’ts – Community Housing Resource Center
2. 4 Costly Refinancing Fees to Watch out For – Smar Money, The Wall Street Journal

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In recent times, streamline refinances are gaining a lot of ground and are increasingly beind used to avoid home foreclosures in USA. A refinance streamline mortgage is extremely beneficial because not only does it not require a complete credit report or an appraisal but it can also refinance any Federal Housing Administration (FHA) loan which has decent repayment and mortgage history. A streamline refinance is quick and hassle free and requires minimal documentation. It is however a rule of the FHA that the repayments on the new streamline FHA refinance must be lower than those of the existing loan. Consumers must bear in mind that it is in their best interest to see an FHA credit officer or lender to discuss your mortgage loan and the possibility of streamlining it.

FHA Loan Refinance Streamline Program

In most FHA loan refinance streamline programs, no underwriting is required owing to the fact that the loan balance is not increasing. However if the loan balance does increase underwriting will be needed and the HUD (Department of Housing and Urban Development) will be required to submit repayment history for 12 months. Streamline FHA refinances allow for individuals to be added to the loan without a review of their credit report. However in the event that you are looking to take someone off the loan, consumers might need to get the loan re-assessed.

Standard FHA streamline refinance requirements are listed below:

• There should be no cash taken out via the streamline refinance.
• There is usually no income or asset verification.
• The mortgage loan being refinanced must be insured by the FHA.
• The borrower’s repayment history must be current and up to date.
• The payments for the refinance streamline mortgage must be less than the existing mortgage unless the balance is increasing.
• In order to qualify, the borrowing party should own the property in question and must have had it for at least 6 months.
• The new refinanced streamline mortgage will have a term of 30 years or the remainder of the existing mortgage term plus another 12 years.
• A complete credit report is not required and there is very little underwriting that is required as well.
• It is mandatory that the client has not defaulted on any form of federal or government debt.

VA Streamline Refinance Program

IRRL (interest rate reduction loan) is another common name for the VA streamline refinance program loans. Most credit analysts regard this as one of the best loan products on the market as it is easy to qualify for and is designed for people serving active duty and for veterans with existing VA loans. This streamline refinance allows service members to get a lower rate and it is easy to qualify for. As long as the borrowers do not have more than 1 thirty day late payment on their credit report they can qualify for the VA streamline refinance. Just as streamline FHA refinance loans, these too do not require credit or income qualification and are quite easy to enter.

Feature of the VA streamline refinance include:

• There are no transaction costs involved in the VA streamline refinance loan.
• There is no income, job or asset verification.
• No credit qualification required.
• Borrowers are allowed to skip up to 2 payments
• The borrower’s existing loan must be a VA loan.
• Although no cash out is allowed with the loan, up to $6,000 in energy efficient improvements are allowed to be included with the loan.

A loan refinance has always been an alternative to bankruptcy and as you can see both FHA and VA streamline refinances are financial tools that can help borrowers get on top of their mortgages. With no credit qualification and minimal underwriting these loans are not only easy to qualify for but are also beneficial as they ensure that the interest rates are lower than the existing mortgage and so are the repayments. These refinance streamline mortgage loans will help consumers and service people get back in front of their existing mortgages and allow them to rebuild or maintain healthy credit reports.

References:

1. Home Loan Guaranty Services – United States Department of Veteran Affairs
2. Streamline your FHA Mortgage – U.S. Department of Housing and Urban Devlopment

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For consumers struggling with their existing mortgage a mortgage refinance might be an alternative to bankruptcy. Most credit consumers have experienced changed circumstances over the years and the mortgage which suited you then might no longer be the option. Under changing and extremely difficult financial conditions mortgage refinancing might just be the best alterative to save you from bankruptcy.

Refinance Your Mortgage For Better Credit Report

Consumers are sometimes misled and often believe that bankruptcy is a whole new start. While this is true, one should remember that declaring yourself bankrupt, comes with a lot of repercussions and bankruptcy affects credit reports as stated below:

• For starters, your FICO score gets affected negatively by anywhere between 240-280 points owing to the fact that bankruptcy is a matter of public record.
• Secondly clients who have been declared bankrupt find it very difficult to obtain credit and even if they do it is at a much higher interest rate.

Hence in light of these facts a mortgage refinance might just be the saving grace and one of the best alternatives to bankruptcy.

Alternatives To Filing Bankruptcy

Bankruptcy is not the only solution to manage mounting debt and there are some alternatives to filing bankruptcy that will not affect your credit report as badly. Listed below are a few alternatives to bankruptcy:

1. Refinance A Mortgage To A Lower Rate: If you are still in a product or with a lender offering a higher interest rate than the market place, it might be time to shop around and look for a lower interest rate for a mortgage refinance. A lower interest rate means lower repayments.
2. Mortgage Loan Refinance And Debt Consolidation: If you have more than one property and are struggling to keep up with your repayments, a mortgage loan refinance and debt consolidation might be a good idea. Consolidate your two separate mortgages into one facility and make one repayment on them. This usually also enables customers to make lower repayments owing to the single facility being larger and is an excellent bankruptcy alternative.
3. Line of Credit: This is a very powerful mortgage tool. This is much the same as using a checking account. The client is granted an overall account limit and can draw down from the mortgage loan as and when required. You only pay interest on the drawn down amount or the used amount.
4. Obtaining Cash Out: This type of a mortgage refinance will allow you to use the lazy equity in your mortgage loan. The diagram explains what lazy equity is.In this example the consumer can get a loan of up to 80% of the property value, i.e. 480,000 without having to pay Mortgage Insurance. Hence the client can use the additional 30,000 as per the client’s discretion. People often use the cash out component to pay off bills, credit cards and to create buffers in their mortgage account.

Using a mortgage refinance is a great alternative to bankruptcy as a well managed mortgage loan improves your credit report rather than the damage bankruptcy causes. However, there is one more alternative to bankrtupcy as well:

• Filing For A Chapter 7 or Chapter 13: Clients can sometimes file for a chapter 7 which is commonly known as liquidation as alternative to bankruptcy. This does not disqualify a client from obtaining a mortgage refinance as long as 2 years have passed since the client was discharged of the bankruptcy. On the other hand if the client files for a chapter 13, he/she can still obtain a mortgage refinance as long as the payments in relation to the mortgage and the bankruptcy have been made on time.

In a changing credit environment, consumers can no loner rely on the “one size fits all” principle. It is essential that clients reassess their situations and are full aware of all bankruptcy laws before making a decision. As as an alternative to bankrtupcy, one can refinance mortgages out of their present financial institutions and on to cheaper rates and solutions. This could be the ideal alternative to bankruptcy and helping you maintain a blemish free credit report.

Reference:

1. Could Mortgage Refinance Help You Get Out Of Debt? – Legal Helpers

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