Hi savvy, homeowner! We're glad you're thinking about the potential pros and cons of refinancing. Of course, every mortgage loan is different, but here's a very general rule of thumb: it might be a good time to refinance when prevailing mortgage interest rates are 2% lower than the current rate on your loan. Of course, if you're thinking of a cash-out refinance or shortening the length of your loan, that 2% rule could be as useless as a fabric front door. We're always happy to crunch some numbers for you so you can see for yourself.
In short, mortgage discount points are upfront payments that a borrower may choose to make at closing in exchange for a reduced interest rate. Each Point typically costs 1% of the total loan amount and typically lowers the interest rate by one-quarter of a percent. The best part? The new, lower rate applies for the entire life of the loan.
We all know how quickly mortgage interest rates can change. And we also know that applying for a mortgage loan isn't an instant process. That means your mortgage rate will likely change from the day you apply to the day you close the loan. Unless... you pay a fee that “locks in” the loan's interest rate for a specified time period (usually 30-60 days).
What's a home really worth? It's hard to put a price on the future memories and that original wood detailing in the entryway. But, an appraisal can give a professional opinion of the value! An appraisal establishes the fair market value for a home before it's sold or before a refinance loan closes. This gives the mortgage lender and the borrower confidence in their investment.
On a conventional mortgage, when your down payment is less than 20% of the purchase price, your mortgage lender might require you to pay for private mortgage insurance (PMI). It's just because a lower down payment equals more risk to the lender and if you pay them a bit more each month, that financial risk is reduced. If your loan has PMI, you might be able to get rid of it later. Hang in there!
Below is a list of documents that are required when you apply for a mortgage. However, every situation is unique and you may be required to provide additional documentation. So, if you are asked for more information, be cooperative and provide the information requested as soon as possible. It will help speed up the application process.
If self-employed or receive commission or bonus, interest/dividends, or rental income:
If you will use Alimony or Child Support to qualify:
If you receive Social Security income, Disability or VA benefits:
Source of Funds and Down Payment
Debt or Obligations
Woohoo! Closing day is the big one — the day you sign the papers that say you own your new home (or you have received the benefits of your new refinance loan).
Closing might take anywhere from one hour to several hours, depending on the details of your loan and the overall transaction. So, come hydrated (and maybe caffeinated).
Most paperwork in closing or settlement is done by attorneys, escrow officers and real estate professionals. You may or may not be involved in some of those closing activities; it depends on who you're working with. But you'll definitely sign on a dotted line or two.
PRO TIP: Every section you sign should be explained to you before you sign it. If not, don't be shy about speaking up to ask. And never feel bad about taking the time to read it all.