Now is a Great Time to Explore a Mortgage Refinance
The Coronavirus has sent shockwaves through the economic markets and one consequence is the decrease in mortgage rates.
You may have heard people say, “Now is a great time to refinance your mortgage.” Let me fill in the gaps with two government refinance programs you may want to consider. A refinance could save you hundreds of dollars a month on your mortgage.
Before we go into the options, let me explain “refinance” in general. With a refinance, you change the terms of your mortgage. For example, you may pay a new monthly amount for your principal and interest payments.
You may also decide to change your mortgage from an adjustable rate to a fixed rate.
Here are two government refinance options:
VA Interest Rate Reduction Refinance Loan or VA IRRRL
VA IRRRLs must pay off a VA loan that meets all of the following requirements.
To apply for an IRRRL, you don’t need an appraisal or credit score requirement. You may refinance the loan with “no money out of pocket” by including all costs in the new loan. You could also take out the new loan at an interest rate high enough for the lender to pay the costs. However, you cannot receive any cash from the loan proceeds.
The loan must be current, meaning it can’t be more than one time 30 days past due during the six months preceding the new loan’s closing date. The IRRRL loan must close seven months after the closing on your original loan and you must have made six full monthly payments on the original loan.
Your lender will need to do a bit of math up front before the refinance can take place. Let’s say you spend $4,000 on closing costs to refinance with the IRRRL program. You will need to demonstrate you can save up to $4,000 in monthly payments over the next 36 months.
Why? The bank and the VA need to know you will benefit from the refinance and see savings in a short time period.
During an IRRRL refinance, you can also change from an adjustable rate mortgage to a fixed rate so even if interest rates shift over time, yours will remain the same.
As a final point, a home that is financed with a VA loan but is no longer your primary residence can still qualify as long as the veteran or the spouse of an active service member can certify he or she previously occupied the property as his or her home. This is different than the requirement for non-IRRRL VA loans that the veteran must intend to occupy the property as his or her home.
FHA STREAMLINE REFINANCE
There are two different forms of a FHA streamline refinance: non-credit qualifying and credit qualifying.
With non-credit qualifying, all borrowers on the existing mortgage must remain as borrowers on the refinance (there are a few exceptions including divorce, legal separation or death.)
When it comes to credit qualifying, at least one borrower on the existing mortgage must remain a borrower on the new mortgage. In these cases, the lender must obtain all credit and income documentation, and the remaining borrower needs to qualify for the new mortgage.
FHA streamline refinances are for principal residences. The lender will review the borrower’s employment documentation (W-2, paystub) or obtain utility bills to prove the borrower occupies the property as a principal residence.
In addition, at least 210 days must have passed from the closing date of the mortgage being refinanced and the borrower must have made at least six payments on the FHA-insured mortgage being refinanced.
Above all, the refinance must be a tangible benefit to the homeowner (ex: going from an adjustable rate to a fixed rate).
If you have considered refinancing, now is the time to explore your options.
Shikma Rubin is a loan officer at Tidewater Home Funding in Chesapeake (NMLS #1114873). She enjoys the chance to lead workshops and webinars on how to buy a home in 2020. Have mortgage questions? You can reach her at srubin@tidewaterhomefunding.com or 757-490-4726.