Helpful Tips to Guide You Through the Refinancing Process

There are several different reasons people choose to refinance their existing home mortgage. However, the most popular reason is the lowering of interest rates. If interest rates have dropped since you were granted your original mortgage, or even if your credit rating has improved, it might be a very good idea to refinance your current loan.


Whatever the reason may be, with the right guidance, research and preparation refinancing your home mortgage isn’t really that difficult a process, in fact its about the same as taking out your original mortgage. Here are some tips to help you through the process of refinancing your home mortgage.

What you need to do before contacting a lender

Have a defined goal

First, you need to ask yourself the question, what do you want to accomplish by refinancing your mortgage? Do you want to reduce your monthly payment. Are you looking to shorten the length of your loan? Do you want to change from an adjustable-rate mortgage to a fixed-rate mortgage? Do you want to borrow against the available equity that has built up in your home over the years, or combine a first and second mortgage?


After focusing on your goal, evaluate whether a refinance will improve your financial situation or not. There are several reasons to want to refinance your mortgage and there are benefits to doing it, but before you contact a lender, have a clear cut objective in mind.


Find out the value of your home

The value of your home will play a major role in deciding if a refinance is a good idea for your situation. Typically, 20% equity is the standard requirement for most lenders. However, if your home doesn’t meet this requirement don’t assume that a refinance is out of the question.


To find out the value of your home, contact a local appraiser and ask about sales of comparable homes in your area.


Check your credit

Even though a lender will check your credit score, it’s still a good idea to review the information for yourself beforehand. You can get your free credit report from an online credit service. This will allow you to check the accuracy before going to a lender, so there aren’t any surprises when a lender does run your credit report. However, if there are inaccuracies or surprises, be ready to give your lender explanations.


Assess the current status of your income and debts

Create a list of all your monthly debt payments, including mortgage, auto loans, student loans and credit cards.


Then, make a separate list of all your sources of monthly income and the amounts, just like you did when you originally applied for your mortgage.


The standard qualifications for a home refinance requires that no more than 36% of your income going toward debt, however, being above this cut off won’t automatically disqualify you.


Organize all your paperwork and documents

Even though you might not need all of these documents, it’s a good idea to have all of the necessary paperwork handy before you contact your lender, just in case they require them. These papers can include:


  • W2s and tax returns for the past 2 years
  • Current month’s mortgage statement
  • Your pay stubs for the past month
  • Home insurance declaration page and policy number
  • Bank statements for the last 2 months for each active account
  • Retirement statements
  • Clear copy of your driver’s license and social security card


Contact lenders

When you have all your papers collected and totals figured out, contact several lenders regarding interest rates and fees. Even though your best bet is to contact your current lender first, make sure you still do a thorough survey of several different lenders to make sure you are getting the best rate possible.


What to expect when you contact a lender


Get pre-qualified

As in the case of applying for your original mortgage, it is a good idea to get a pre-qualification. During this process the lender will ask you for information to determine your eligibility for refinance. Prepare to share information about your debt and income situation, an estimate of your home’s value and your social security card so the lender can run a credit check.


Second meeting

After the lender reviews your initial information, they will contact you regarding the terms of the loan you qualify for. For instance, after the lender does their pre-qualification, discovery stage, it may be determined that you don’t have sufficient income to refinance a 30-year mortgage into a 15-year term, however, you may qualify for a 20-year home loan instead, or other refinance options.



The loan officer will discuss the options and fees associated with your loan during the application process. This is also when the mortgage company will be able to lock in your interest rate.



An appraisal of the property is required by most lending institutions. An appraisal usually costs between $350-$450 which is paid directly to the appraiser.



After your appraisal, if your property is within the parameters of the loan, the lender will grant the final loan approval. You will then receive a set of the loan documents to review.


Signing and settlement

When all the paperwork is processed, a settlement will be scheduled. On the date of the settlement you will sign all of your paperwork. At this time your old mortgage will be paid in full. After the settlement, you won’t have to make a mortgage payment to your new lender until the following month.

The refinancing process, even though it seems daunting, will go a lot smoother when you have a clear understanding of the steps involved. All it takes is a little research and preparation to be well on your way to achieving greater financial stability.

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A Mortgage Pre-Approval Defined

A mortgage pre-approval is when a mortgage lender determines how much they are willing to lend you after reviewing your credit and financial situation. Normally, you would request a pre-approval before you start the house hunting process, so you have an idea of how much you will be able to finance.


Usually, after you find a house within your pre-approval amount, and you make an offer on it, you go back to the same lender for a final approval.


A pre-approval determines more than just the loan amount

Besides determining the size of the loan you may be eligible for, a pre-approval will also determine if you even qualify for a home mortgage at all. If you meet the mortgage lender’s minimum criteria for credit score, debt ratios, income and other determining factors, they will give you a maximum loan amount.


The lender will also give you a letter of pre-approval to use during your search for a home. Even though you receive a pre-approval for a mortgage loan, it doesn’t guarantee that you will qualify for the mortgage when you apply for the actual mortgage.


The lender is not obligated to grant you a loan based on a pre-approval. You will still need to go through a secondary review process when you apply for the final approval


Forms of qualification

There are different stages to the approval process, which include:



  • Pre-qualification – For this process, you provide the lender with your very basic financial information including your monthly income and debts. The lender will then give you a “ballpark” amount, based on this information, they may be willing to lend you. This process isn’t very in-depth, in most cases, you can get pre-qualified without even submitting a mortgage application.




  • Pre-approval – This is a more useful and in-depth version of a pre-qualification. When you get pre-approved for a mortgage loan, the lender will actually start to verify your financial situation. This is the difference between a pre-approval and pre-qualification. The lender will request several different documents from you including tax records and bank statements. They will also look into your credit score. The pre-approval process gives you a more accurate idea of how much you can borrow, making it a great idea to pursue before you start house hunting.




  • Approval  – This is the lender’s final approval. This process will take place after you have decided on a home and made an offer to buy. At this stage you need to provide your mortgage company with a copy of the purchase agreement and go through an extensive underwriting process that could take up to 30 days.



The benefits of having a pre-approval

It only makes sense to get a pre-approval before starting the search for your new home. Without one, you could spend weeks looking at houses until you finally find one you like. Then, when you apply for a loan, you find out the home you want is out of your price range, or worse you don’t qualify for a loan at all.


The best case scenario, you have to start the search all over again, this time, with an idea of the price range you need to stay within. This is why there are several benefits to obtaining a pre-approval before you start your search for a home. Other benefits to getting a pre-approval include:


  • A pre-approval will help you find any financial problems you may have, such as too much debt, a low credit score, low income, etc. The sooner you find out about these problems, the sooner you can start to correct them and move on to buying your home.


  • If a real estate agent knows, ahead of time, you will most likely qualify for a loan and how much it will be, they will be more willing to work harder to help you find a home within your price range.


  • Sellers are more willing to take your offer seriously, as opposed to a potential buyer that hasn’t even talked to a lender yet and there is no guarantee they will even qualify, let alone be able to afford the asking price.


  • It is the logical way to shop for a home because you have an idea of the amount you will be able to finance and you can stay within that price range.


How to get a pre-approved home loan

The first step in getting a pre-approved home loan is to find a lender or broker. When you have chosen a mortgage lender or broker, you are ready to submit an application for pre-approval.


Fill out the application, including details about the type of loan you need. After reviewing your information and checking your credit score, they will let you know how much they may be willing to lend you.


Documents you will need to apply for a pre-approved mortgage

The list of documents you will need to apply for a mortgage pre-approval will vary, based on the lender you use. However, most lenders will ask for the following items:



  • Verification of Income – This is a common request that usually includes your two most recent pay stubs.



  • Verification of Employment – This is usually a list of your employers for the last two years and their contact information.


  • Place of residence – You will need to provide the addresses of where you have lived in the last two years.


  • Bank information – Normally lenders will request the information for all of the bank accounts you have, including checking, savings or money market accounts.


  • Tax information – Lenders typically want to see your W-2 statements and tax returns for the last two years.


  • Other assets – Lenders will want documentation of any other assets you have including CDs, stocks and bonds or an IRA account.


  • Credit information – Lenders will usually ask if you have any outstanding loans such as car loan, student loans or any other type of loan.


  • Monthly expenses – There are some lenders that require an itemized list of your monthly expenses including rent, credit cards, student loans, etc.

The lender you choose will provide you with a complete list of the documents they will need to complete the pre-approval process.


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Buying a Home



Buying a home can be a very difficult process, and not one you want to take lightly, when you are finished, you will have to live with your decision for a very long time.


It is also more difficult to qualify for a mortgage loan in today’s market, than it has been in the past. New regulations that have been set in place since the housing crisis require lenders to verify every aspect of the borrower’s finances before they can approve the loan.


This is why you need to be completely prepared before you contact a lender. You should have your budget worked out, along with how much you can afford for a monthly mortgage payment, long before you sit down and start talking with the bank.


Here is a helpful guide to prepare for your mortgage application and ensure your success at receiving a home mortgage in California which will fit your budget:


First, evaluate your situation

The very first step to preparing for your mortgage application is to sit down and thoroughly evaluate your financial situation. Make a list of all your monthly household expenses, and be realistic, include:


  • Auto payment
  • Credit card payments
  • Utility bills
  • Healthcare
  • Groceries
  • Entertainment
  • Anything else you regularly spend money on every month


Add all of these expenses together and you will have your total monthly living expenses, not including your housing expense.


Next, subtract all of your living expenses from your take-home pay. This is the amount left over, from your paycheck, after taxes and other payroll deductions. You want to use the amount you actually have available to spend out of every paycheck for your budget.


The amount you have left over, after subtracting all your debts from your income is what you have available to spend on your monthly mortgage payment. However, you still want to keep some money for emergencies or anything else that may pop up. So you will want your mortgage payment to be below this amount, as much as possible.


It is possible to be approved for a mortgage that is too large for you to handle. It actually happens often, as evidenced by the number of home foreclosures in the United States. This is why it’s so important to carefully create a realistic budget before you begin dealing with lenders.


I can’t stress enough, just how important creating a budget within your means is to getting a mortgage you can live with.


Next, what not to do


Now that you know one of the most important things to do before applying for a home mortgage, here are some things you should avoid doing before applying for a home mortgage:


  • Hold off on additional financing plans – Wait to apply for additional financing until after you close on your home. This includes auto loans, personal loans and any other items you were thinking about financing. You could end up having a problem trying to get your home financed if you are over-extended with other forms of debt.



  • Limit credit card usage – Keep credit cards balances below 30% of credit limit. You will want to keep your balances as low as possible. Racking up charges on your credit cards will add to your debt and show up on your credit report.



  • Pay bills on time – Make sure all of the bills you owe are current and paid on time. When lenders run your credit report, a single missed bill could harm your chances of getting your mortgage.


  • Save as much money as possible – Start saving early and save as much as possible. The more the better. You will need to save money for your down payment, your closing costs and even need additional cash reserves.  Banks love to see cash reserves. You may also need funds for furnishings, improvements, etc.


  • Don’t make any career changes – It’s not a good idea to switch jobs or make waves with your employment while applying for a home mortgage. The exception to this rule would be if you have the opportunity to significantly increase your income, which will obviously improve your chances for obtaining the loan. The exception to this rule would be if it’s the same type of work, with the same amount of money or more, with a min amount of days off between career changes.



Benefits to buying a home

There are some major benefits to buying your home, rather than renting. They include:



  • The ability to modify your home – Unlike renting, you can make modifications to your home, making it suit your needs and wants. You can renovate, remodel or expand your home to fit your needs and taste.




  • Stable housing costs – Your mortgage payment will remain the same for the life of the loan with a fixed-rate mortgage. You won’t have to worry about your monthly payments increasing every year. As time goes on, and your income, possibly increases with each year, your monthly mortgage payment will become increasingly more affordable. This gives you the opportunity to pay down the principal quicker, which will raise your credit score and relieve the cost of a monthly mortgage payment.




  • Building equity in your home – Building the equity in your home has several benefits. You can use your home’s equity to take out a line of credit for home improvements, pay down current debt or obtain a loan for any other financial goal.




  • Something to show for your monthly payments – Unlike renters, you will have a tangible asset to show for the monthly payments you make. In comparison, renters make monthly for the same amount and then walk away with nothing if they decide to move.




  • Your home will increase in value – The value of a home depends on several different factors. Your home is an investment and will increase in value. If you do choose to sell it in the future, you can make a profit to put toward another home or some other financial goal.




  • Tax deductions – Homeowners can qualify for several different tax deductions, it’s a good idea to talk with your tax advisor, so you can find out what your qualifications will be.

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Lower Your Payment

Lower your Mortgage


Your mortgage payment is most likely the largest monthly expense you have. That is why it is always wonderful when you are able to lower your mortgage payment to an amount that is much more manageable.


This will give you more money to either pay the loan down sooner, be able to afford some things that you can’t afford at the moment or even make up for a situation that has left you strapped for cash, like having your monthly income lowered for some reason.


These savings examples are based on a mortgage with the following factors:


  • Mortgage of $200,000
  • 30-year fixed rate mortgage
  • 6 percent interest rate
  • $1,199 monthly mortgage payment


Once a Year add an Extra Payment


The easiest way to save money on your mortgage is to make an extra mortgage payment every year. Extra payments are automatically applied to the principal of the loan and not the interest. This doesn’t just lower the remaining balance, but you will not have to pay interest every month on that part of the principal for the remaining length of the loan.


By just adding one extra mortgage payment a year and applying it to your principal, you can save over $47,000 in interest and cut 5 years off the life of the loan.


Biweekly Payment Plan


Another way to lower the length of your mortgage and pay it off quicker is by creating a bi-weekly payment plan. Put half of your monthly mortgage payment in a savings account every other payday.


Each month, pay your mortgage from the account, and at the end of the year, you will have made 26 half payments, which of course is 13 full payments. Doing this will leave you with an extra payment you can put toward your principal.


Even though most people can manage the separate accounts themselves, there are companies that can be hired to act as an escrow service to manage the payments for you. If you chose to use one of them be careful because may charge you a fee for the service.


Your savings for using this option is $47,000, the same as adding one extra payment every year.


Cancel your Private Mortgage Insurance (PMI)

If you put a down payment of less than 20 percent on your loan, you were probably required to pay private mortgage insurance (PMI). However, as soon as your mortgage balance falls below 80 percent of the home’s appraised value, you can petition your lender to cancel the insurance.


This can also be done if your home’s value has gone up or you have repaid some of the principal. You may need to get a new appraisal of your home, however, you could shave hundreds of dollars off your monthly mortgage payment.


If you only put 5 percent down on your home and had a PMI rate of 0.78 percent, you could save $130 per month.


Lower your Assessment

You can be required to pay thousands of dollars a year in property taxes. If you think your home’s value has decreased in the last year and it was not properly accounted for in your tax assessment, you can petition your assessor and fight your assessment. Being able to lower your assessment will lower your yearly taxes, your savings will vary based on your tax rate and assessment but you could save hundreds of dollars a year.


Reset your Mortgage

This isn’t a widely known process, but some lenders will allow you to reset (recast) your monthly payment if you make a large payment toward the principal of your mortgage. Your monthly payment will stay the same, but you shorten the term of your loan.


When the loan is recast, your monthly principal and interest is recalculated so you end up with a lower monthly payment over the existing term of the loan. For example, if you make a one time payment of $20,000 into your loan, your payment would be reset to $1,079, saving you $120 per month.


Modify your loan

If you are currently going through a financial hardship, and are late on your loan payments, you may be eligible to modify your loan, such as rate, term or principal balance, to make it more affordable.


The goal of these programs is to allow borrowers to remain in their homes and continue making their monthly payments. This doesn’t mean that everyone will qualify for this type of program. However, if you do qualify, you can save a lot of money. Contact your mortgage servicer to see if you qualify.


Your savings will vary based on your eligibility.




The most common way to save money on your mortgage is to refinance your mortgage to a lower interest rate. Reducing your rate can lower your monthly payment and help you save on interest payments.


One thing you need to keep in mind if you are thinking of refinancing your current mortgage is that there are costs which are associated with refinancing, so you want to be sure you are going to save enough to offset any refinancing fees you may incur.


With interest rates and historic lows, if you can refinance, and you haven’t already, you should consider doing so. By lowering your interest rate to 5 percent, you could take your monthly payment down to $1,073, which would save you $126 per month. If the refinance fees cost $5,000, you would recoup the fees after 40 months.

Since the cost of living will continue to rise, several people are looking for ways to lower expenses and reduce their mortgage payments. A monthly mortgage payment takes up a large part of your monthly income.


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First Time Homebuyers



Buying your first home is a very exciting accomplishment. However, buying your first home can also be a very challenging process as well, so here are some tips to help guide you through the obstacles of first time home buying.


Get pre-qualified

Sellers usually won’t accept your offer unless there is proof that you are serious about the offer and, more importantly, that you will be able to get financing to go through with the deal. This is why it is very important to apply for a pre-qualification with a lender.


Since a pre-qualification covers only the most basic review of your finances and, is in fact, the most basic form of approval. Pre-qualification states that after a basic and a quick review of some of your finances, the lender would consider approving you for a loan. It is better to get a pre-approval, which states that the lender will, most likely, approve a loan for you at a specific amount.


Zero in on a location

Every  town has benefits and drawbacks. However, you should try to zero in on one location that works best for you and then pursue homes in that area. Otherwise, you will wind up with too many options, which will only create more stress than necessary, which will lead to making a bad decision.


Find a neighborhood that is located close to where you work, has a good school system and offers some of the amenities that you require and want. This way you will already be in the area that works for you and you can then focus on finding a home that appeals to your needs and wants.


Prioritize your preferences

Make a list of what’s important to you and your family in a home. Some ideas would include location, condition, price or other specific amenities. Since you won’t get everything you want in a home, be prepared to make some sacrifices along the way.


However, if you make a list of priorities it will be easier to focus on the options you just won’t sacrifice and you will have an idea of what options aren’t that important to you that you could live without to gain options you truly want.


Understand your budget

Before you start house hunting, make sure you have a well defined budget that lists exactly how much you can borrow and the monthly payments you can handle. With an investment as important as buying your first home, you can’t afford to not have a firm understanding of what you will be able to afford.


Once the papers are signed and you move in, there really is no going back, so it is very important to come up with an honest and realistic budget before you even start looking for a new home.


Be Realistic

This one goes hand in hand with understanding your budget. If you are approved for $200,000 don’t go looking for a home that costs more than that. Most sellers will receive several offers equal to or higher than their asking price. You are only setting yourself up for disappointment if you make an offer on a home that costs more than you’ve been pre-approved for. Why set yourself up for failure, it only brings down your morale.


Don’t drag your feet

Because of limited inventories, homes can sell quickly. Check out newly listed properties, that interest you, as soon as possible. This doesn’t mean you should rush into any deals, this only means, when you are looking for a new home focus on that task and see it through as you would any other job. Getting your finances in order first with a budget and getting pre-approved helps to play a major role in preparing yourself for home hunting.


Don’t play games when making an offer

Some first-time homebuyers will offer the seller a higher price to beat out other offers. Then they will try to recoup the difference in price with seller-paid closing costs, repair credits and other concessions.


This isn’t a very smart tactic because if the appraisal doesn’t support that higher offer, you won’t be able to find a lender who will finance it anyway. It is better to do your homework and research the property completely, then offer a fair price for the condition of the property.


Pay closing costs

If you ask a seller to pay your closing cost, it only weakens your offer and lessens your chances of gaining the property. A seller only cares about how much they will receive for the home, if you ask them to pay all or part of your closing costs, that is money being subtracted from the total amount they receive for the home and will, most likely end with the seller taking someone else’s offer instead of yours.


Don’t expect perfection

This is along the same lines as asking the seller to pay for repairs, unless you are applying for an FHA loan or a VA loan, the property may not be perfect, but still in good shape and with a little work it may be perfect and suitable to your taste. If you are going with either of the loans mentioned and their safety concerns or missing appliances, there is no choice but to replace them. However, if you are working with a different loan option, take into consideration what the defects of the property are and weigh them against the price you will pay to see if the asking price is still a good deal.


Do your homework

You can gain an advantage over experienced buyers who are out of touch with the trends by being well-informed about the local housing market. Do your research in the area that you want to buy a house in. Be thorough and look into all of the trends over the past few years. A little bit of knowledge and preparation will go a very long way to getting you the house you want for a price you can afford.


The bottom line is, purchasing a house today isn’t easy. It’s a challenge, to say the least, especially for first time homebuyers. However, if you follow these simple tips, you’ll have a greater chance of securing the home you want at a price and terms you can live with.


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