Is Rate and Term Home Refinance Right For You?
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What Is a Rate and Term Home Refinance
Is a Rate and Term Home Refinance Right For You?
A Rate and Term refinance mortgage is designed to offer you a better interest rate or loan term than you have on your current mortgage loan. The benefit of lower interest rates is pretty obvious, but the change in your loan term can mean either a shorter or longer repayment period, or some other change in terms of your mortgage that offers payments that are better for your situation. Some people who struggle to cover the monthly bills finally get relief when they refinance into a loan with a lower payment. If you are still stuck in a loan with a higher interest rate, a lower rate that saves thousands of dollars over the life of the loan is a great loan benefit, even if the monthly payment is not lowered by much. Some want their mortgage paid off more quickly. They may refinance from the normal 30-year repayment period into a shorter period of 15 years, so the loan is paid off prior to retirement. Borrowers in a biweekly mortgage may have found it was harder to pay timely than a mortgage with a monthly payment schedule and may find relief in making just one payment each month. There are, in fact, several facets that determine which changes in loan terms are best for you. Following the financial crisis, a decade ago, changes in federal regulations instituted minimum benefit for the borrower required in any rate and term home refinance transaction.
Rate and Term Refinance Options
FHA (Federal Housing Administration) Insured Loans
Streamlined FHA Rate and Term Refinance: An FHA (Federal Housing Administration) insured loan is not just for purchases. FHA insures both rate and term refinance and cash out refinances. If you already have an FHA loan, and don’t want to take any money out, but want to benefit from the low interest rates today, an FHA Streamlined refinance can be just the ticket. The basic requirements of a streamline FHA refinance are:
- The current mortgage being refinanced must be an FHA insured.
- Mortgage that you are refinancing must be current (not late or past due).
- The new mortgage must offer a “net tangible benefit”. In other words, it must save you money on your payment or over the term of the loan.
- You may not take more than $5000.00 cash out.
Some lenders offer no out of pocket expenses for your FHA Streamline refinance. Lenders may have to charge you a higher rate of interest to cover these expenses, but if you still benefit, it can certainly be worth choosing this option. FHA loans are available to those who have imperfect credit or income and with relaxed lending criteria may be able to offer loans to more consumers.
FHA Cash-out Refinance: The FHA cash-out refinance is the only FHA loan that allows you to receive cash from your loan proceeds. It requires more documentation than the streamlined refinance, but can allow cash out for College tuition, home improvement projects, paying off a car loan or buying a new car or for debt consolidation. Keep in mind, your new FHA mortgage will carry a larger balance than the loan you refinanced, depending on how much cash you received from the proceeds of your refinance. When you are ready for this program, a licensed loan originator will need to consider your income, credit history and a fresh appraisal report, on which your approved loan amount will be based.
203(k): The 203(k) Rehab Mortgage Insurance is a special purpose FHA cash out refinance loan. The 203(k) mortgage can be issued for the purpose of remodeling the property being purchased, or already owned. The 203(k) mortgage allows homeowners to borrow the funds for needed repairs or upgrades to their eligible home. The repairs being financed must be a minimum of $5,000, and the total loan amount must be within FHA loan limits. Eligible Repairs
- Structural alterations and reconstruction
- Modernization and improvements to the home’s function
- Elimination of health and safety hazards
- Changes that improve appearance and eliminate obsolescence
- Recondition or replacement of plumbing
- Addition or replacement of roofing, gutters and downspouts.
- Addition or replacement of floors and/or floor treatments
- Major landscape work and site improvements
- Enhancement of accessibility for disabled
- Energy Conservation improvements
When considering a 203(k) mortgage, remember that HUD has minimum energy efficiency and structural standards that must be met once the home is rehabilitated.
VA Refinance Options
Eligible Veterans or spouses seeking to refinance their current VA guaranteed loan to a new VA guaranteed loan with better interest rate may get better rates than a non-VA guaranteed loan because the risk is lower for the lender, since the VA guarantees a portion of the loan. Additional Facts for VA
IRRRL: No Appraisal OR Credit underwriting package is required. That can save the borrower money, but also reduces your chances of denial. If you have paid your current VA mortgage on time, but today’s interest rates are improved over what you currently have, it may be time to talk to us about your new VA IRRRL mortgage. When refinancing from an adjustable rate mortgage (ARM) to a fixed rate mortgage (FRM), the interest rate may be higher than your current rate in the ARM. No lender is required to give you an IRRRL, but a VA Lender may process your application. No Cash out is allowed in an IRRR (interest rate reduction refinance). You may not receive ANY cash from the loan proceeds. Keep in mind this may affect the day the loan can be scheduled to close. VA IRRRL is only made to refinance a property already VA eligible. It reuses the entitlement you used originally. No new Certificate of Eligibility (COE) required No Loan other than the existing VAL loan can be paid off in the IRRRL. If you have a second mortgage, the hold must agree to subordinate their lien position (agree to be in second place behind the new mortgage)
VA CASH OUT: If you are eligible and need a Cash out refinance loan for paying off debt, funding school or making home improvements, the VA guaranteed loan can be beneficial to you. You can reuse the benefits of a VA, so even if you used a VA guaranteed loan to purchase the home, you can still refinance into a new VA mortgage loan. There are a few more considerations: Entitlement: you may have used your entitlement by getting a VA loan when you bought the house, or when you substituted your eligibility for that of the seller if you assumed the loan. For an IRRRL, you need only to certify that you previously occupied the home. That is different from other VA loan rules. There is no loan limit made by the VA, but the VA limits the amount it will guarantee. Your income, credit worthiness and history may determine the amount your lender will lend. VA charges a Funding fee. This reduces the cost of the loan to taxpayers. The fee varies with the type of loan offered and the loan amount
USDA Home Refinance Options
USDA program Rural Development (RD) guarantees home loans for eligible borrowers in low to moderate income range, who meet the program criteria. RD mortgages may be issued for rate and term refinance or for cash out refinance loans. If your home is in an eligible area – usually in a rural or underdeveloped area - https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do;jsessionid=6yEHcas440ivzebNWbeTQ4LD Click here to see if your area qualifies (Open link in new window) you may benefit from several guaranteed USDA RA loan programs. Applicants must:
- Be US citizens, US non-citizen national, or qualified Alien
- Meet income eligibility
- Have legal capacity to take on the loan obligation
- Show credit worthiness, through timely payments on Credit obligations
- Have Property which meets RD program criteria
Uses from proceeds of RD Loans:
- 504 Home Repair Program – to repair, improve or rehab an eligible home.
- Energy Efficiency – purchasing and/or installing measures that promote energy efficiency. This can include energy efficient windows, insulation, solar panels etc.
- Refinance of eligible loans
- Update home to comply with disability needs of a household member
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