One of the nice things about a home refinance of a home with a conventional mortgage is that compared to some of the federal programs, it can be very easy to do. But you need to make sure you are doing it for the right reasons and you must have a fairly rapid pay-back of the costs associated with it…
… Ideally, I think that you should recoup your fees and the other expenses that you incur when you do a home refinance within 2 years, maximum. Making that a rule in your refinancing strategy will give you time to respond to significant changes in the economic climate at home in the U.S.A. and abroad.
The way the guidelines are set up at this time (4th quarter 2011), you must always have at least 10% equity in your home when you decide that you want to get involved with a home refinance. The more equity the better. In today’s financial environment, having a reserve that you can fall back on may be the difference between surviving a tough time and ending up in foreclosure.
I would go so far as to say that AFTER the refinance, you should probably have still have 10% in your home unless the reason for refinancing a home is an absolute emergency.
Also, always remember that depending upon various factors such as comparative interest rates and post-refinance monthly payments, it may prove advantageous for you to refinance into a FHA or VA loan if you are eligible.
How Your Credit Score Will Affect Your Home Refinance Application
Remember, this is a conventional loan home refinance that you are doing so as long as they are not breaking the law, you may be able to talk your bank into making a special deal so you can get what you want. However, standard guidelines exist for credit scores.
Normally, lenders will not be too interested in loaning you any money if your FICO credit score is below 620. And, they won’t want to cut you a break on the interest rate below a FICO credit score of 720.
Equity Minimums Required When Refinancing A Home
During the sub-prime mortgage debacle of recent fame so many substandard loans were written and lenders got wacked so badly, that they went to extremes in the other direction. So, now, it is almost impossible to get a home refinance of a conventional mortgage without an equity position of at least 10 percent.
Again, it’s a conventional loan and given the right circumstances you may be able to find a lender who will go with you so it wouldn’t be necessary to have so much equity to refinance a home with a conventional refinance loan.
Lender Initiated Home Refinance Appraisal
Before 2009 you could often find a mortgage broker or a loan processor who would provide the appraisal on your home free of charge… Assuming that you gave them your business. However due to the abuses of the sub-prime scandal the Federal Housing Finance Agency issued a set of guidelines known
as the Home Valuation Code of Conduct.
Loan originators and processors hated them so it was probably something that was good for consumers but there was a downside which was that when you wanted to refinance a home with a conventional refinance loan you had to issue the request for an appraisal yourself. A nuisance and an expense that probably cut dramatically into the loan business due to reluctance on the part of homeowners to foot the expense and go to the trouble to find a good appraisal.
Then, President Barack Obama signed the Dodd-Frank Act on July 21, 2010. The Dodd-Frank Act was specifically designed to correct systemic problems with the mortgage industry. Then, on October 18, 2010, the Board of Governors of the Federal Reserve released Interim Final Rules for the appraisal independence provisions of the Dodd-Frank Bill.
And, that’s where it is now. Your lender can, in fact, order an appraisal under the provisions of the Dodd-Frank Act and regulations created under the mandate of the bill. But, the lender is strictly regulated so that they cannot influence the appraisal that is made and I think that is good for everyone.
What that means to you is that due to the cost of the appraisal, you may want to choose your lender before the appraisal otherwise you will be stuck with paying for it out of pocket rather than rolling the cost into the loan.
Finding The Best Lender To Refinance Your Loan
Deciding who you want to handle the financial side of refinancing a home can sometimes be quite difficult. Especially since the internet gives you the ability to go national in your search for the best terms and conditions.
But, don’t be arbitrary about it. A lot of small regional and local lenders are having a tough time keeping their portfolio of loans full. Go to the top real estate agents in your local market and ask them who they think are the best local/regional lenders. They will probably be happy to help because they know that there is a good chance that they will get your business at some point in the future if they are able to help you out in a meaningful way, today.
Also, review my article “How To Decide Who To Get A Mortgage From ” on the basics menu where it is called “Investigating Mortgage Loan Lenders” to get more thoughts about how to find the best lender for you and your situation.
Compare the local and regional lenders with the big national mortgage originators. Having a local office and personalized service may be worth a lot more than 1/2 a point in interest rates through the years… especially if you go through a rough patch and need the lender to work with you.
Applying For Your Home Refinance Loan
This part is pretty straight forward. Decide on your lender and apply for your loan. I suggest you review my article called “How To Get A Home Loan ” which is on the “Applying For A Loan” menu.