Post tagged “Refinancing a Home”

Did you know that your AirBnB rental income can help you qualify for a refinance loan? In the past using any rental revenue from your “primary residence” was not acceptable on mortgage applications. However, starting in 2018 mortgage government-sponsored entity (GSE) Fannie Mae partnered with lenders to allow borrowers to both claim a property as a primary residence and use AirBnB rental income to qualify for refinance loans. If you’d love to refinance your loan, here’s what you need to know:

Why Refinance?

As a homeowner and a vacation rental host, you may want to make your earnings stretch even farther by refinancing into a lower interest rate. The savings could free up cash to make improvements to your AirBnB or allow you to work on other financial projects.

You might also want to refinance if you want to have more financial freedom sooner. You could refinance from a 30-year loan into a 20-, 15-, or 10- to pay less interest and own the property outright in a shorter time frame.

Maybe you need a large chunk of cash to do some serious repairs or renovations on the property. Or perhaps business is going so well that you would like to acquire another AirBnB rental. You could choose a cash-out refinance to pull equity out of the house and put it toward your goals.

Huge Benefit

In order to qualify for a refinance mortgage, you will need to have sufficient income and assets, as well as a low enough debt-to-income (DTI) ratio. That’s where your AirBnB rental income can be a huge help now. That consistent revenue stream can count as income and can reduce your DTI, making it easier to meet the loan requirements. With traditional investment properties, refinancing often comes with tougher restrictions and the interest rates are usually slightly higher than on primary mortgages. By allowing you to count your AirBnB as primary residence (assuming you do live there some of the time) and still accounting from the rental income in your overall financial positives, lenders are making refinancing much more affordable and achievable.

Proof Required

Once you apply for a refinance on your AirBnB property, you will need to provide certain documents proving your AirBnB. The lender will want to see your mortgage documents showing you have owned the property for at least 12 months. You will also need to provide your contract with AirBnB, as well as your “Proof of Income” statement from the company. The lender will use that record to verify that you have been renting part or all of your primary residence for at least 12 months, and it will average your earned rental income during that time to determine how much extra income to add to your mortgage application. (If you’ve been renting for longer than a year, many lenders will want to average your income from the past 24 months, rather than 12.)

This documentation is important for the mortgage industry because if borrowers were allowed to simply state that they may have extra income from rents, or if they just showed income from one or two months, they might be qualified for loans larger than they could afford, putting them at risk for foreclosure down the road.

So if you participate in AirBnB hosting, refinancing for better rates and terms or some extra cash may be easier than you thought!

When you bought your home, you (hopefully) qualified for a mortgage that you could afford and if you stay on top of it monthly, you’ll own your home free and clear in 30 years (or less, depending on your loan terms.) Making extra payments may not even have crossed your mind, but there are actually plenty of reasons why you might want to scrape together just a little bit more to throw at your mortgage each year.

Build Equity Faster

If you make the equivalent of just one extra mortgage payment a year, you will increase your ownership share in your house faster. This can be financially smart if you bought with less than a 20% down payment and are currently making private mortgage insurance premiums. Once you reach 20% equity in your house, you can cancel your PMI policy, saving you hundreds or maybe thousands of dollars a year.  And if you worry that putting money into your house will make it harder for you to accomplish other projects and goals, you can always tap your home equity through a secondary mortgage loan later.

Save on Interest 

With an amortized loan, the interest is front loaded, so if you make extra payments, it all goes to the principal, reducing the amount you owe, and the amount interest required. If you plan to stay in your home for the long haul, contributing just one additional mortgage payment a year could save you tens of thousands of dollars in interest. The savings will be realized once you finish paying off your home loan.

Be Out of Debt Earlier

If you contribute one extra payment a year, you will end up paying off your mortgage three to four years early on a 30-year fixed rate loan. Of course, that saves you money, but it also means you will own your home free and clear sooner. This might be important if you’d like to be done with your mortgage before you retire or before you take on some other financial goal, like buying a vacation home or taking bucket list travel trips. 

While it might sound daunting to come up with an extra payment every year, there are several ways to do it that make it more manageable. You could save up a little money throughout the year, or you could take an annual bonus or your tax return money and make a one-time principal-only lump sum payment. Another option is to divide your monthly mortgage bill by 12 and add that amount to each payment that year. And finally, you could switch your payments to a bi-weekly schedule. You divide your monthly payment in half and contribute that amount to your lender every two weeks. By the end of the year, that schedule will have added up to one full additional mortgage payment and you likely will not even have felt it in your budget.

The great thing about all these options is that if you ever hit a financial rough spot, you can simply pull back on contributing any extra money without any penalties. You can then use that money for your immediate needs and get back into saving and adding extra mortgage payments when the issues get resolved.

Mortgage interest rates have been near record lows for the past several years. At the same time property values have jumped dramatically, giving homeowners plenty of equity. Those two factors combine to make right now an excellent time to get a cash-out refinance loan. 

But what if you own rental properties or investment homes? Could you take out a cash-out loan on them? And should you? Here are some reasons you might consider using that type of mortgage on your rental properties.

Improving Your Rental Units

If your investment home or apartments have been in need of some significant repairs or renovations, pulling cash out of your equity could be a cost-effective way to pay for it. Once you update or fix the properties, the value will increase, bumping up your equity and allowing you to charge more in rent.  Refinance loans always come with closing costs and fees though (even if it’s at the back-end) so be sure to make sure the numbers pencil out.

Expanding Your Rental Business

If your rental business is running smoothly, a cash-out refinance might be a way to get a down payment for another investment property to your portfolio. Depending on how much you have in equity, you may even be able to pay outright for your next rental unit.

Lowering Your Interest Rates

Since rates are still low for now, if you took out mortgages at a higher cost several years ago, this may be a good time to get a cash-out refinance. You’ll reduce your overall mortgage costs and still be able to pull out some equity for projects.

Personal Financial Help

Life is unpredictable and you might need the cash for your own life needs. It could be medical expenses, sending a kid to college, or even to pay for your retirement expenses. Cash-out refinance mortgages are great because even though the loan is tied to your property, you can use the money for any purpose whatsoever.

Requirements for an Investment Property Cash-Out Refinance 

Lenders will want to see that you have a significant amount of equity in your rental unit. That means having a nice low loan-to-value ratio. You will also need to have a decent credit profile for approval and the higher your score, the lower the interest rate you’ll pay. In addition, the mortgage lender will look for a low debt-to-income ratio. This does not mean that you can’t have any debt, but simply that even with all the money you owe on your rental property, the income being brought in by it provides plenty of cushion to make the payments.

So the answer is yes, you can take out a cash-out refinance on your investment properties, but whether you should depends on your individual situation and finances. Call us today, we can help you run the numbers.

The typical mortgage loan lasts 30 years and is amortized equally over that entire period, so that the borrower makes consistent payments, including both interest and principal. The last payment pays off the loan. However, there is a type of loan called a balloon mortgage that only lasts five to seven years and requires little or no payments for most of that time. Sound too good (or crazy) to be true? Here’s how they work and when one might be right for you:

What is a Balloon Mortgage?

A balloon mortgage is a short-term home loan that requires small or no monthly payments for the whole loan term, somewhere between five and seven years. At the end of that period, the entire remaining loan balance is due. For example, if you take out a $300,000 balloon loan for seven years at 3.5%, you’ll pay just $1,347 each month, but at the end of that time you will have to come up with $256,481 all at once. That is an insane amount of money, and it might seem like it would never make sense to take on that type of risk, but it actually can be a smart move in some situations.

Why Use a Balloon Mortgage?

There are at least four scenarios when a balloon loan might be the best option:

1. You purchase the house to flip it quickly for a profit. You will not need to hold the loan for more than a year in most cases, and if the flip is done properly, the sale price should more than cover the balloon payment.
2. Your credit is not good enough to qualify for a traditional loan, but you are already taking steps to improve your score. If it increases significantly, you will be able to refinance into a safer loan within a few years, while still enjoying the benefits of homeownership now.
3. You anticipate moving anyway within the next five years. A balloon loan would allow you to make minimal monthly payments, so you can save up for the next house.
4. You believe mortgage interest rates will drop dramatically over the next few years and you want to pay similar mortgage prices until then. You would have to time the market right to refinance before your loan comes due.

Risks

There are some obvious risks with taking out a balloon loan. Whether you plan to sell or refinance or even save up all the money in cash before it comes due, there are no guarantees that those strategies will work out according to your timetable. What if the market slumps just as you need to sell? What if you can’t qualify to refinance because you don’t have enough equity in your home? These are all possibilities that you need to address before signing on.

A balloon mortgage can allow you to get into a home now, save you lots of money on monthly payments, and there is no prepayment penalty for paying it off early. Just be sure you understand the legal and financial responsibility you face if you can’t pay it off according to the terms.

With the housing market on fire, home prices have steadily risen for the past several years. The result has been an enormous amount of home equity for American homeowners. In fact, according to mortgage data firm Black Knight in the second quarter of 2021 U.S. homeowners held a collective $9.15 trillion in usable equity.

“U.S. homeowners with mortgages gained another $1 trillion in tappable equity in the second quarter alone,” says Ben Graboske, Black Knight’s president of data and analytics. “This is by far the strongest growth we’ve ever seen and equates to some $173,000 in equity available to the average mortgage holder, a $20,000 increase in just three months.”

At the same time, long-term mortgage interest rates have remained around 3%, near historic lows, making it inexpensive to refinance as well.

That has resulted in a rush of cash-out refinance loans. There were 1.1 million such mortgages made in the second quarter, the fastest quarterly pace in almost 15 years.

Should You Tap Your Home Equity?

Maybe this data is getting you thinking about a cash-out refinance. With so much equity and low rates, it might be the perfect time to pull out some money for that kitchen remodel you’ve been dreaming about, or for seed money for your business idea, or even to pay off student loans or other high-interest debt.

A cash-out refinance could help with any of these plans. First you need to calculate how much equity you have. Subtract how much you still owe on your mortgage from the most current estimate of your home’s value. (This has probably gone up since you bought it.) Most mortgage lenders will allow you to tap only a portion of your equity. They want you to still have at least 20% equity left in your home after your refinance. For example, if your home is now worth $350,000 and you only owe $200,000 on your mortgage, you would be eligible to borrow up to $80,000 in equity.

Before you run to your mortgage lender, however, remember that every home loan requires costs and fees. You need to make sure that a new loan is worth the upfront cash you’ll have to pay. Closing costs can range from 2% to 5% of the loan total, so if you take out a new mortgage for $280,000 you could end up paying between $5,000 and $14,000 just to make the loan. Those can sometimes be rolled into the loan balance, but you are still responsible for them one way or another.

There may be other situations where a cash-out refi is not a good choice for you. You may not want to tap your equity with a cash-out refi if your interest rate is already lower than the going rates today. Many people capitalized on rates near 2.5% at the end of 2020 and it may not make sense to pay more for a new mortgage. In this case, borrowers may be better off opting for a home equity loan or a home equity line of credit. These are secondary loans that use the equity but do not affect the interest rate of your main mortgage. You could borrow what you need and pay it off as quickly as possible to minimize interest fees.

If you crunch the numbers, however, and a cash-out refinance works well financially, the good news is that interest rates are lower on mortgage loans than on almost any type of loan and your equity is likely to keep rising over time. Give us a call today, a quick chat with us could help you figure out if a cash-out refi is right for you.

Refinancing a mortgage can be incredibly helpful financially, whether for lowering monthly payments, shortening the loan term, or pulling out equity to pay off debt or for other projects. Even as you achieve those fiscal goals, you may wonder what effect refinancing has on your credit. While taking out a new mortgage loan can lower your credit score a little, the benefits typically outweigh the short-term dip. Here’s why refinancing affect your credit and how you can minimize any hits.

• Credit Check
  Every time your credit gets pulled by a lender your credit will get dinged a little. These hard inquiries as they are called can cause a temporary score decline of a few points. Continued timely payments and good credit habits will bring your number back up quickly though. The savings from lower interest rates are usually worth the minimal drop.
  
• Multiple Credit Applications
  The more hard inquiries you have the more your credit score will fall. During your period of shopping around for the best interest rate or terms, try to keep all these credit checks within a 45-day time frame to have them all count as one inquiry. Stretching multiple loan applications over many months will have a far worse effect on your score. Also, try to avoid applying for any other major purchases (cars, appliances, etc.) during your mortgage application process to avoid additional credit checks.
  
• Closing Older Loans
  By refinancing, you are ending an older, existing mortgage. That could potentially lower your credit because it is shortening your credit history, one of the key elements of any score. You are also opening a brand-new, untested loan as well. However, if your previous mortgage was closed in good standing, many credit scoring models will take it into account and lessen the hit to your credit report.  And of course, as you continue paying down your new loan on time, your score will improve again.
  
• Cash-Out Refinances
  Your credit may see a bigger fall after a cash-out refinance because you are pulling money out of your equity and increasing your credit utilization ratio. By creating more debt for yourself, you have less available credit and your score may decrease. Just remember, that as you continue to make timely payments, your credit will regain its original score after a while.
  
• Missed First Payment
  Sometimes there may be confusion about when the first payment of your new mortgage loan is due. Often the first payment is skipped because the old one pays it off. If the old mortgage does not get paid off before the new loan closes, there could be late payment penalties. Just double check with your lender that everything is order and when your first payment is due.

Overall, a mortgage refinance should only have a minimal impact on your credit. Being able to save thousands a year on payments or getting rid of high-interest debt with a cash-out refi can certainly be smart long-term decisions that could end up boosting your score in the end.

Give us a call today and we can answer any questions you might have about refinancing your home.

Even though the COVID-19 pandemic is waning in the U.S., millions of Americans continue to suffer financially from the effects. In fact, 2.3 million homeowners are still in mortgage forbearance plans, according to the Mortgage Bankers Association. Hopefully as the number of coronavirus cases dwindles, the economy will continue to recover and more and more of those borrowers will be able to resume their normal monthly payments.

If you find yourself currently in one of these forbearance plans, you may be wondering if and when you can refinance into a new mortgage. Interest rates remain near rock-bottom, providing plenty of savings for many borrowers.  In most situations, you will not be allowed to refinance after your forbearance plan ends for 12 months, but the time may vary from lender to lender. It may also depend on what type of mortgage you have and whether you fell behind on any payments. One notable exception applies to those with federal loans who are current on their mortgages; they can qualify immediately for a refinance. Federal loan borrowers who are not current would have to wait three months and complete three consecutive payments on time.

After you finish your forbearance program, the refinance process will involve the following:

• Determine the Type of Refinance
  Of course, now is a great time to refinance into a loan with a lower interest rate. It could both lower your monthly payments and overall interest costs. However, be aware there will likely be upfront costs and it will reset the timeframe of your mortgage.
  Lower rates are not the only reason to refinance though. You might want to shorten your loan from a 30-year to a 15-year mortgage to pay it off before retirement. Or you may want to pull some cash out of your equity to consolidate high interest debt. Talking with your lender will help you determine the best refinance for your situation.
• Check your Credit
  Being in a forbearance program has the potential to lower your credit score. You can check your FICO credit score for free once a year with each of the three main reporting bureaus: TransUnion, Experian, and Equifax.  It’s important to look for errors and get them removed to help your score as much as possible. The better your credit, the better your refinance loan terms will be in general. You may decide to wait a few months after your forbearance ends to boost your credit a little more.
• Provide the Required Documentation
  Once you are ready to refinance, you will need to gather lots of documents for your lender. This will include things like two months of pay stubs, two months of bank statements, and two years of tax returns. You may also need to provide a list of assets and liabilities, a copy of your title insurance and your homeowner’s insurance policy.

Although it may take a little more time and research, it is definitely still possible to refinance after forbearance. If you have any questions, please give us a call today.

Even though they have been inching up, mortgage interest rates still remain near historic lows, making it an excellent time to refinance. If you want to take advantage of these rock-bottom rates or if you want to pull money out of your equity, the first step is to find a lender. Of course, there are lots of options, but in some cases, you may actually benefit from refinancing with your current lender. Here’s why:

They Know You

Depending on how long ago you purchased or refinanced your home, they might remember you. If you worked well together during that process, you probably developed a good relationship. Returning to that lender means you will not have to start from scratch by creating a new partnership. Especially when you have to put your finances in their hands, it is helpful to have already established that trust.

They Might be able to Streamline the Process

Because your current lender has all your personal and mortgage information on file, you may be able to skip some of the paperwork. The entire mortgage process may be able to move quicker since your lender already has access to your borrower and payment history as well as your income and credit profile. You may need to just add any relevant updates.

You Could Save Money

Your lender wants to keep your business. It is much easier to maintain clients than to generate new ones, so your lender will probably be motivated to give you the best deal possible. This could be a lower interest rate, or it could be a reduction of fees or points. You should still feel free to negotiate with your current lender, even if you know you want to stay with them. Your lender may even be willing to match rates and offers you receive from other lenders.

You May Be Able to Rollover Your Escrow Account

If you work with the same lender for your refinance, instead of closing your current escrow and opening a new one, it may be possible to roll your existing one into a new one. This might be just one more step that makes the loan process smoother.

Don’t be Afraid to Change

We’ve helped many borrowers refinance their mortgages. So whether you want to lower your mortgage payment, shorten your loan term or accomplish other financial goals, give us a call today so that we can show you how we can help you.

It is important to remember that sometimes when you refinance your mortgage that total finance charges can be higher with a new loan – especially if the interest rate is higher on the new loan or if the loan term is longer on your new loan.

Keep in mind that the lender or company that you worked with during your previous mortgage process may not be the same entity that is currently servicing your loan. Most Brokers and some Lenders sell of their mortgages to a third party servicing company soon after they close your loan. So, be sure to separate any differences in customer experience between your lender and loan servicer.

If you’re thinking about refinancing we would love to provide you with a quote. We work hard for all of our clients and we want to work hard for you. Our goal is to treat you well and to help you make the best possible mortgage financing decisions for your situation.

Mortgage interest rates have been creeping up from their historic lows over the past few months, but they are still extremely low. That means refinancing remains a great option for those looking to save money. However, even as rates climb, there are plenty of other good reasons to refinance. Here is an long list of the uses for refinancing your mortgage:

1. To Get a Lower Rate
   Always number one on the list, if you can get a lower interest rate, you could save hundreds on mortgage payments a year and thousands over the course of your loan. Typically, your new rate should be at least one percentage point lower than your existing rate for you to realize long-term savings, but there may be some exceptions.
2. To Shorten Your Loan
   Maybe you’re not looking for immediate savings, but you are more concerned with the long-term. You could refinance from a 30-year to a 15-year mortgage to force you to aggressively pay off your loan and be mortgage-free in a shorter period of time.
3. To Get a Different Type of Loan
   If you started out with something like an FHA loan (low down payments but permanent mortgage insurance), you might want refinance to get into a more favorable product like a conventional loan.
4. Your Credit Profile Has Improved
   If your credit score was low or your debt was high when you applied for your current mortgage, you may have had to accept higher interest rates or other stringent requirements. If your financial outlook has improved, you might be able to refinance and get a less expensive loan with better terms.
5. To Remove a Second Mortgage
   If you have multiple loans on your property (second loan, home equity loans, HELOC) and you are ready to have one payment, refinancing can consolidate both loans into one (hopefully lower rate) mortgage.
6. To Stretch Out Your Loan
   Maybe you really need to save on your monthly loan payments. Refinancing into a new 30-year loan (or longer) will reset your amortization schedule and help make your monthly bill more manageable.
7. To Switch Out of an ARM
   Adjustable rate mortgages start out with a low fixed rate for a short time after which it can rise (or fall) based on market indexes. If you’re worried about making payments after your initial period expires, refinancing into a fixed-rate loan could solve the problem.
8. To Switch Into an ARM
   If current rates are low, you plan to move in a few years, or you need more wiggle room in your mortgage budget, refinancing into an ARM loan will lower your monthly payment for a while.
9. To Get Out of an Interest-Only Loan
   Very popular during the housing boom of the early 2000s, these loans only require borrowers to pay the monthly interest due each month for a certain time, after which the loan is recast and they have to make much larger monthly payments. If you’re approaching that deadline, a refinance into a more traditional product could save you money.
10. To Make Use of Interest-Only Savings
    If you have a ton of home equity and you need extra money now, you could refinance into an interest-only loan and use the monthly payment savings for your other needs.
11. To Pull Out Equity
    You could also pull out a big chunk of that equity with a cash-out refinance. The money can be used for whatever you like: student loans, debt consolidation, wedding costs, home improvements, or even investments.
12. To Become the Sole Homeowner
    In the case of divorce or to release your parents as co-signers, you may need to refinance to get someone else off the title.
13. To Apply a Lump Sum and Re-amortize
    If you’ve saved up a big chunk of money or inherited a large sum, you may consider refinancing to significantly bring down your loan balance while simultaneously lowering your monthly payments.

Phew! That’s a lot of reasons to refinance. There are still more reasons to refinance your mortgage loan but these are the most common.

If you are thinking about refinancing your mortgage, give us a call today!

In today’s unpredictable COVID-19 employment environment, many Americans are feeling an economic pinch. Those who have student loans received temporary relief with the government CARES Act, but when that ends, some borrowers may be wondering how they are going to make their payments again. For homeowners, it may be possible to get a refinance loan to pay off all the student loan debt. But is this a smart solution?

Pros of Paying off Student Loans with Refinance Money

By taking out a refinance mortgage to pay off student loans, borrowers can consolidate their debts into one payment. And mortgage loans today offer record low interest rates than other debt, allowing you to pay a lower rate on your student loans when you refinance. 

Cons of Using Home Equity for Student Debt

There are some potential dangers to using your home as a bank though. Your mortgage loan is tied to your house as collateral. If you are unable to make your payments on your mortgage, you could risk losing your home, while if you are unable to pay your student loan debt, your credit will be damaged but no asset will be lost. 

If you have federal student loans, you may lose out on benefits that already reduce your debt burden like income-based repayment plans, public service loan forgiveness and loan deferent plans.

Plus, refinancing could stretch out the length of your mortgage loan, increasing the total amount of interest paid on your total debt in the long run. And new mortgage loans always include fees that could make paying off your student loans less cost-effective.

You could consider refinancing your student loans for better terms, if you do not want to put your home at jeopardy.

How Does it Work?

If you decide refinancing is the best option to pay off your student loans, here’s how it works: You get a cash-out refi loan that is larger than your current mortgage. You use the excess funds to completely pay off your student debt, effectively rolling them into your home loan. Now each month, your mortgage payment will be larger, but your overall debt interest rate will be lower. 

Before you get started, first determine how much home equity you have. In general, lenders will allow you to take cash out of your home as long as you have at least 20% equity, but more is certainly better. The more equity you have the easier it will be to avoid becoming upside down on your loan and easier to sell your home in an emergency.

If you have enough equity, it’s time to consider the term. Do you want a new 30-year loan? That could potentially extend your loan past retirement in some cases. It could also increase the total interest paid significantly. Refinancing into a 15-year loan with a higher loan amount is likely to considerably increase your monthly.  A 20-year mortgage might also be a possibility. Make sure the time frame and payment work for your situation.

With interest rates at rock bottom lows, using your home’s equity to pay off student loan debt could be a way to save money and streamline your finances. Just be sure the numbers all pencil out before you take the plunge.

Call us today at 360-570-0106 to discuss your ideas. We would love to work with you and see if paying off your student loans with a home refinance loan is a good idea for you.