Sacramento Refinancing Opportunities
Depending on when your original home loan was closed, you could still be paying a higher interest rate than the one you could lock in today.
If you are thinking about refinancing opportunities in Sacramento and asking yourself if 2022 is your year to refi, we want to help you better understand what is available to you today. Even with mortgage interest rates no longer at record lows, for many interested in homeownership, the rates are still historically low making it a great time to refinance. Depending on when your original home loan was closed, you could still be paying a higher interest rate than the one you could lock in today.
Before we get into what a refinance could mean for you, we want to clarify the three different types of refinancing mortgages, “rate-and-term refinance,” “cash-out refinance” and “cash-in refinance” which is a variation of a rate-and-term refinance.
Rate-and-term refinance allows homeowners to change their existing loan’s mortgage loan terms (the length of the mortgage), rate, or possibly even both. A lowered interest rate or monthly payments means you can save month-to-month. One goal of a rate-and-term refinance loan is to save money on your monthly payment, as it goes down when you refinance a mortgage loan to a longer term, giving yourself more time to pay off your loan.
The goal of a cash-out refinance is to tap into your home’s equity. One important factor with this option is to understand that equity isn’t liquid cash. In order for you to access it, you have to take a loan against your home’s value. With a cash-out refinance your new loan balance is bigger than what you previously owed. The new loan is used to pay off your existing mortgage balance, and the money left over is what you’re “cashing out.” The new loan may also offer a lower interest rate, or a shorter loan term compared to the original loan, but the main goal of this refinance is to obtain liquid cash, not always lower your interest rate. Cash-out refinancing is available with conventional, FHA, and VA mortgages.
A cash-in refinance is the opposite of a cash-out. Regarding cash-in refinancing, the homeowner brings cash to closing to pay down the loan balance, with the goal of owing to the bank as little as possible. Cash-in refinancing can result in a lower mortgage rate, a shorter loan term, or both.
With a better understanding of the three types of refinancing options, let’s go deeper to understand the reasons to refinance.
Do you have an FHA, VA, or USDA mortgage and are thinking about a streamline refinance to lower your interest rate?
- Do you have a large expense you are looking for cash to support? With a cash-out refinance, you can take out a loan on your equity and have liquid cash to support your financial needs (home improvements or renovations, consolidating debt, paying college tuition, or an emergency fund).
- Has your financial situation changed for the better? You could possibly be eligible for an improved interest rate that you couldn’t qualify for upon obtaining your original mortgage, improving your monthly payments.
- Are you simply looking for a lower interest rate? This is the most common reason to refinance.
- Are you interested in paying off your home early? Paying off your loan early can be done with the right refinance, saving you important time and money.
- Are you looking to remove your private mortgage insurance (PMI)? PMI is mortgage insurance that protects the lender in case of a default on the mortgage. Removing additional expenses within your mortgage payment will lower the monthly expense.
- Do you have an adjustable-rate mortgage (ARM) and it is about to reset? It may be a great time to refinance if your adjustable-rate mortgage’s fixed-rate period is almost up. You could lock in a great fixed rate for the remainder of your loan term.
Understanding your personal “why” to refinance is essential. The next step in the process is to learn about your refinance eligibility. Are you eligible to refinance right now?
Home Equity: If you are interested in removing mortgage insurance premiums and have at least 20% home equity, you might be eligible when you refinance. With more than 20% equity, you may be eligible to take cash-out at closing.
Credit Score: At least a 580 FICO score is required for FHA refinancing. Conventional loans and VA loans typically require 620 or higher with minimum credit scores expected to be higher for cash-out refinancing. Lenders want to see clean, positive credit reports with on-time payments and no delinquent accounts.
- Loan-to-Value Ratio: Your loan-to-value ratio (LTV) is a large factor in determining whether you’re eligible to refinance. Your LTV also determines how much equity you can cash out.
- Existing debts: Avoiding taking on new debt is very important when thinking about a refinance. Debt-to-income ratio (DTI) helps determine which refinance programs and rates you qualify for. Auto loans and personal loans are often the deal breaker with your debt-to-income ratio.
In order to refinance your home, be prepared to complete a full mortgage application and go back through the underwriting process, similar to when you originally bought your home. The only exception to having to start over is for government-backed streamline refinancing. The streamline refinance has relaxed underwriting guidelines and only works if your new refinance is the same type of loan as your original mortgage. Because guidelines vary from program to program, FHA and VA loans are generally the easiest to refinance over conventional mortgage loan programs.
Mortgage lenders set their own loan program eligibility requirements since they are the ones taking the most risk. If you think you’re qualified to refinance and one lender denies you, don’t give up, you can try again with a different company. The stronger your personal finances, the lower your new rate will be and the more you could save.
If you haven’t yet taken advantage of low rates, or maybe you’ve been previously denied and are looking for a second chance, it’s worth checking your refinance eligibility with United Wholesale Lending. Getting a quote is free and if your current rate is above-market, don’t miss the opportunity to save big! If you’re feeling unsure whether you would qualify, at United Wholesale Lending we are excited to help you better understand the process and move through your refinance with ease. You might even be surprised how much your home’s value has risen over the last couple of years.