Hello homeowner! We're glad you're weighing the pros and cons of refinancing. Every mortgage loan is different, but as a general rule of thumb, a refinance is worth considering if prevailing mortgage interest rates are 1%-1.5%- lower than the rate on your existing loan. If you're considering a cash-out refinance, the rate spread could be less important, depending on other factors. We're always happy to discuss your scenario and crunch the numbers for you so you can see for yourself.
In short, mortgage discount points are upfront payments that a borrower may choose to make at closing in exchange for a reduced interest rate. Each "point" costs 1% of the total loan amount and typically lowers the interest rate by one-quarter of a percent. The best part? The new, lower rate applies for the entire life of the loan.
We all know mortgage interest rates can change quickly. Completing a mortgage loan pre-approval isn't an instantaneous process and the interest rate markets will likely change following your initial application and before you close on your eventual loan. "Locking" your interest rate secures your rate for a period of time and removes any risk of future rate increases. Rate locks most commonly cover 30-45 day terms.
What's a home really worth? It's hard to put a price on the future memories and that original wood detailing in the entryway. But, an appraisal can give a professional opinion of the value! An appraisal establishes the fair market value for a home before it's sold or before a refinance loan closes. This gives the mortgage lender and the borrower confidence in their investment.
On a conventional mortgage, when your down payment is less than 20% of the purchase price, the lender will require you to pay for private mortgage insurance (PMI). PMI insures the lender against a borrower's default on the loan and history has shown that higher down payment loans are less risky to the lender and have lower default rates. PMI does increase your monthly payment, but it also offsets the lender's perceived higher risk from the lower down payment scenario to the lender. If your loan has PMI, we can explain the ways you may be able to get rid of it later!
Below is a list of documents that are commonly requiredm when you apply for a mortgage. However, every situation is unique and you may be required to provide additional documentation. So, if you are asked for more information, be cooperative and provide the information requested as soon as possible. It will help speed up the application process.
Your Property
Your Income
If self-employed or receive commission or bonus, interest/dividends, or rental income:
If you will use Alimony or Child Support to qualify:
If you receive Social Security income, Disability or VA benefits:
Source of Funds and Down Payment
Debt or Obligations
Woohoo! Closing day is the big one — the day you sign the papers that say you own your new home (or you have received the benefits of your new refinance loan).
Closing might take anywhere from one hour to several hours, depending on the details of your loan and the overall transaction. So, come hydrated (and maybe caffeinated).
Most paperwork in closing or settlement is done by attorneys, escrow officers and real estate professionals. You may or may not be involved in some of those closing activities; it depends on who you're working with. But you'll definitely sign on a dotted line or two.
PRO TIP: Every section you sign should be explained to you before you sign it. If not, don't be shy about speaking up to ask. And never feel bad about taking the time to read it all.