How to Begin the Process of Refinancing Your Home
Buying a home is not just a big decision from a lifestyle perspective, but it is also a major financial decision. Usually, most people do not have the money to buy a home up front, so they use a mortgage. Sometimes, it is possible to refinance a mortgage and greatly reduce the overall cost of the loan.
In order to refinance a mortgage, you would of course have to already have a mortgage. If done properly, refinancing a home can be an excellent way of reducing monthly costs or dramatically reducing the amount of interest you will pay over the course of the loan. However, if you are not careful, it is possible to loose a great deal of money and end up worse off then you were to begin with.
There are a number of similarities to the process of getting your first mortgage and refinancing your loan. However, rather than simply going with the lowest offer, which is typically the way most people choose a mortgage, there are a number of important subtleties when it comes to refinancing a home.
Don’t Only Focus on the Monthly Payment
If you are a homeowner, it is likely you have come across at least one advertisement proclaiming that you can cut your monthly payment in half by refinancing your home. These companies are not lying and can in-fact dramatically reduce your monthly mortgage payment. However, often this is at the expense of extending the period of your loan, which in turn means you end up paying more in interest.
Also, these companies are often predatory lenders, who are very aggressive and when you are done, you have virtually lost all the equity in your home that you worked so hard to build up.
Refinancing a Mortgage and the Application Process
Refinance Loans are very similar to mortgages and you must follow the same types of regulations as other
Common sense would say that if you have been paying a higher mortgage payment for many years, the lender would automatically approve a refinance loan with a lower monthly rate, but this is not the case. Instead, it is almost always necessary to follow the same sort of application process that a person would when they are applying for the initial mortgage. It is almost always necessary to prove employment history, as well as showing your assets and running your credit when refinancing a loan.
The exception to this rule, however, is FHA Loans that are offered by the Federal Housing Administration and VA Loans, that are offered by Veterans Affairs. Both of these Government Agencies offer what is called a streamline refinance. As part of the streamline refinance, as long as the monthly payments are lower, credit is almost never an issue. Usually, the only requirement is that the homeowner has not been late on a payment over the course of the last 12 months.