Your refinance guide.
You will get all kinds of different advice from all of your friends and neighbors about this subject. So whose advice do you take?
Refinancing your home is probably going to be the largest monetary transaction most of us will ever be involved in, so don’t take it lightly!
The housing market is different everywhere, some places it is stable, some still slowly increasing, and some declining. So if you owe more on your loan that your house will appraise for then you might have to look at a 125% loan. They don’t just hand them out to anybody, you will definitely need to have your credit in order, but it might be better than facing an adjusting rate.
Don’t be fooled with no closing cost loans. Most of the times you will get a higher rate to offset the no or low closing costs. Although this might sound good, most of the time with a higher rate you wind up paying for those costs more than double or triple over the life of the loan. Of course you don’t want to pay an excessive amount of fee either. Typically 1-3% origination fee is ok. The smaller the loan amount usually you will see the higher origination.
Also keep in mind that a 30yr fixed isn’t always the only way to go, sometimes if you know that you are only going to be living there for a short term, then an arm might get you a better rate and better payments.
The industry standard is also changing rapidly because of all of the bankrupt mortgage companies and foreclosures going on. The type of loan that you could get last year might not exist this year. If you have damaged credit you will be looking at much stricter guidelines set by lenders. There used to be programs out there that allowed risky credit borrowers to get 100% financing with a 560 mid credit score, not anymore. Now you are looking at a 620 mid credit score for that same program.
Consolidating debt, should I?
Some people believe that you should never use your house to pay off credit cards or vehicle loans. What is your situation? How tight is money in your bank account? This might answer your own question. The key to consolidating debt is to NOT ACCRUE NEW DEBT! Don’t refinance all of those credit cards, pay off your car, then go out and max out your credit cards again or buy another car. As soon as you are done paying off your credit cards CUT THEM UP! Don’t go and close them all at once either, that can damage your credit as well. If you do want to close them, then close one every month or so. If consolidating your debt isn’t going to save you enough money to make a dramatic difference in your pocket book, then don’t do it.
Are you going crazy with the extra cash that you have every month? Allot of people get accustomed to living in debt, so when the get some extra cash they blow it and get in more debt. If you are one of these people then try setting up an automatic transfer into a savings account on your payday, or make bi-weekly payments on your mortgage. Part of the trick with that saving account is that it should be something that you don’t look at every day. Some employers that offer direct deposit will allow you to deposit into two or more separate banks or accounts.
If you have to refinance and go up to 100% of the value of your house to pay off debt and keep from going in to Bankruptcy, then do it. If you can keep some equity in your home then try to. Keep in mind that if you have to sell your house with a Realtor that you are looking at about 6% in Realtor fees. You will also want to make sure that you don’t have a pre-payment penalty on your loan. That could eat up six months of interest as well. Granted you could try to sell your house yourself and you might get lucky and sell it fast, but usually For Sale by Owner homes take some time to sell. It might be worth trying if you have time on your side.
All in all, you are the master of your domain. So take control of it.