When you are getting an adult, you have to understand finance. You should also know about mortgage refinance too if you want to buy a home someday.
This kind of mortgage always is used in loans corresponding to home loans. This mortgage also can change your current home mortgage with the new home loan.
What Is a Mortgage Refinance?
Some of you may be still get confused by the true meaning of mortgage refinance. People use this refinance technique to minimalize interest rate, diminish payment every month, and use the new home’s equity.
This method can be used to pay back the loan faster or maybe get rid of FHA insurance. You can also use it to switch to fixed-rate a loan from the adjustable rate.
When you know this method it can also help you financially to maintain the loan balance payment.
How Does Refinancing Work?
You have to understand about refinancing mechanism so that you understand the mortgage refinance procedure. When you buy a home by using a mortgage, the money will go to the home’s seller. If you use a mortgage refinance to buy a new home than the money will go to the old home loan.
When you want to apply the new home by using a mortgage refinance so that you should get qualification about your old home loan. You have to meet the requirement of refinancing from the lenders.
You will have to follow the procedures such as fill the document process and go to closing. You will do it similar to buy an ordinary home.
Reasons to Refinance a Mortgage
Before you borrow a loan from lenders for applying mortgage refinance, you should think about the reason why you want to do refinance. Your answer will affect on the approval result from lenders. This will become your qualification beginning process.
People do a mortgage refinance because of many reasons. You can also use it to diminish payment every month, use your new home’s equity, pay back the loan faster.
You can also use it to get rid of FHA mortgage insurance and change into a fixed loan from the adjustable loan.
Types of Refinances
There are some types of mortgage refinance that you should know. Every mortgage refinance has different terms and advantages. You can see the types of refinances below.
Conventional Refinance
The first type of refinances is conventional refinance. This is refinanced is often being used by people to get a loan for a new home. You can use the conventional refinance ti buy a second home, investment property, and first home.
You can use it as home’s equity for refinancing closing. You can eliminate private mortgage insurance too or maybe cancel the FHA mortgage insurance.
FMERR Program
FMERR program is an abbreviation of Freddie Mac Enhanced Relief Refinance. This program is an extension of the HARP program which is expired in 2018.
Even, it is an extension of HARP, it has different requirements si that you should know about where is the difference. You can use FMERR to lower your interest rate and make short the loan term. You can switch the loan from adjustable into a fixed-rate mortgage.
VA Streamline Refinance
Another type of mortgage refinance is VA streamline refinance. This refinance helps you to lower your interest rate by using no out-pocket- cost. You can use it if you already have VA loan property that you will refinance it.
VA Cash-Out Refinance
Another type of VA loan is VA cash-out refinance. This type of refinance help the homeowner to get back their home equity and turn it into cash. This type of VA loan is more flexible than VA home purchase mortgage or VA streamline refinance.
FHA Streamline Refinance
You can also use FHA streamline refinance which is mortgage loan for homeowners by using FHA mortgage.
You need to give information and document about your income and employment verification, bank account, and also credit score verification. You can use this refinance to reduce FHA mortgage insurance Premiums (MIP).
USDA Streamline Refinance
There is another choice for refinance and it is called USDA streamline refinance. You can use USDA refinance to purchase a new home by using a USDA loan. This loan is available for low-income household in rural areas.
Cash-Out Refinance
The last type of refinancing is cash-out refinance. This refinance can pay your existing mortgage loan. You can get turning your home equity into cash. This method can also be used to buy new home.
Ways to Get a Better Refinance Rate
You will have to understand about tips to get better refinance rate from professional or agent if you hire one. When you don’t hire agent, you can just read the tips below.
1. Improve Home’s Equity
You want to get approval for your refinance so that you should improve your home’s equity. You will say how I can improve it? The answer is by lowering your loan-to-value ratio or LTV.
This loan is the amount money that you are lending with specific percentage of value of your home. If you handle LTV by lowering it, you can the key to get approval for your refinance. You can lower LTV by paying back your mortgage.
2. Increase Your Credit Score
You can try to get a better refinance rate by increasing your credit score. You have to make it higher than 740 so that it will become more interest for lenders also.
You can pay back your bills in time, repay the credit card balance, and some unnecessary purchase. Good behavior maintains credit cards will bring you a high credit score.
3. Pay Back Closing Costs
You can minimalize the interest rate by pay the closing costs as soon as possible every month. You can keep the rat low and maybe pay it by using cash.
You should understand the whole terms of mortgage refinance so that you can get the real advantages of it. Whenever you feel confused about this refinance, you can hire real estate agents.
You consult with the agent about the refinance. They will help you directly by giving some advice and handle the problem for you, but still you have to understand first even you are hiring a good agent.
Also read: How to Find the Best Mortgage Lender?