Home financing makes home ownership more accessible to the average home consumer.  Without financing, many would be locked out of the American Dream, a home.

Some of the benefits of homeownership include, 

  • owning a residence you can reasonably modify as you like,
  • living within a residence as long as you desire
  • taking pride in ownership
  • building equity through home appreciation
  • selling for profit without paying taxes on said profit (based on guidelines and limits according to the IRS tax code)
  • use as a tax shelter (based on guidelines and limits according to the IRS tax code)

But one of the most overlooked benefits may be one of the most commonly depended upon available to homeowners.  It is known as home refinancing. 

There are numerous reasons to refinance,

  • improve the interest rate/terms
  • switch from a variable interest rate to a fixed rate
  • change mortgage companies/mortgage servicing companies
  • decrease payments
  • decrease monthly household expenses
  • get cash out for home improvements/debt consolidation
  • improve overall financial positioning 

Since the home is often one of the biggest investments in many homeowner's investment portfolios, it makes sense that a responsible homeowner will find just as much value in refinancing as they do in painting their shutters and updating their kitchen. 

This because nearly nothing needs to be done on behalf of the homeowner in order save sometimes tens of thousands of dollars over the life of the loan just by refinancing.  

What exactly must a homeowner do in order to complete a typical refinance?

  • contact a trusted mortgage professional
  • get prequalified
  • apply for a home refinance
  • receive and sign disclosures to include a Loan Estimate
  • submit disclosures and requested documents to include,
    • 2 months bank statements
    • 2 years job history
    • 2 months paystubs
    • 2 years tax history
    • any other documents required by underwriting
  • sign and submit secondary disclosures
  • allow an appraiser, hired by the mortgage company, to appraise the home
  • satisfy any underwriting predications
  • close (receive funds 3 days later)

Some things that may be required:

  • the loan must be seasoned (in some cases, lenders require a minimum period of time before a homeowner can refinance (usually 6-9 months) following the home purchase and/or refinance.
  • the existing loan must be current
  • the homeowner may not be participating in a forbearance, modification and/or COVID relief program within the last 12 months from the first payment following its establishment
  • the homeowner must meet sufficient credit guidelines mostly based on score (in some cases, some lenders may go as low as 520*, however most seek 580 or higher)
  • the home must have sufficient equity in order to meet the LTV (loan to value) guidelines
  • the homeowner usually pays for some third-party fees 

 

While it may seem like a lot and in some unique cases there may be a few more steps, in most cases, the total time invested in the process is less than a few cumulative hours over the course of a 30-day process.  

The most time spent on the process is usually in determining when to refinance and what type of refinancing will help you achieve your goals. 

The terms commonly used when referring to paying off the entire balance of any and all mortgages on a home with a new mortgage, is home refinance or sometimes, no cash-out refinance.

  • Home Refinance (no cash-out) - When a home is owned (borrower is on the title) and (typically) mortgaged (borrower is on the mortgage/deed of trust/contract for deed), and he/she wishes to pay-off the current mortgage while simultaneously obtaining a new mortgage with no funds from the home's equity being dispersed to- or on behalf of the homeowner/borrower, the home financing is referred to as a refinance (sometimes referred to as a refi).
  • Cash-out Refinance - When a home is owned (borrower is on the title) and (typically) mortgaged (borrower is on the mortgage/deed of trust/contract for deed), and he/she wishes to pay-off the current mortgage while simultaneously obtaining a new mortgage with funds from the home's equity dispersed to- or on behalf of the homeowner/borrower, the home financing is referred to as a refinance (sometimes referred to as a refi).