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What are the closing costs involved with refinancing?
Here in Florida we have three components of fees which include the bank, the title company, and the state. My bank does not charge any points and therefore our fees only change depending if the loan is a government loan or conventional loan. Most of the title fees and state fees are promulgated by the state and based on the loan amount.
I financed my home at 5%, how low does the rate need to fall to make sense financially to refinance?
In order to analyze how much the interest rate must drop before I refinance, one would have to calculate the closing costs and the monthly savings. Once we know how much money you are saving every month, we divide that monthly savings by the total closing costs to find your breakeven point as to when you will recover the cost of the refinance. Everything after that breakeven point equates to savings. Depending on loan size and other variables, we often structure loans to ensure we make sense for clients to refinance. For instance, there are certain situations where we pay all of the closing costs for clients which therefore allows the client to refinance without having to have a large drop in rate. For example, a client has a 300k loan at 5% and we refinance down to 4.25% but the bank pays all the closing costs. The savings is $135/mo which is not a tremendous amount, but if its free, how can you say no.
Credit Faux Pas
Applying for a mortgage can be a stressful process. It’s stressful enough to have to really sit down and look at your financial profile, but when you add on concerns over whether or not you’ll be able to get the home you have always wanted you’ve created a recipe for giving yourself more than a few new gray hairs. The best way to make sure you can apply for the mortgage you need with as little stress as possible is to start your mortgage planning early on. Perhaps the most important step you can take in your mortgage planning is making sure you keep your credit in good health so you look like a strong candidate for your desired home loan.
There are a few active steps you can take to keep your credit in good health and to look like an attractive financial prospect to the bank, but most of the steps you need to take are preventative. If you simply focus on avoiding the following credit faux pas you won’t need to sweat when you apply for your mortgage.
First, you want to keep your overall level of debt as low as possible. A huge percentage of your credit score is determined by the amount of debt you presently hold. The amount of debt you hold affects your credit score in a couple big ways. The more debt you have the greater your monthly payments on that debt. The greater the monthly payments you have on that debt, the less money you’ll have to contribute to your mortgage. The less money you have to contribute to your mortgage, the less likely you will receive the mortgage you need on the terms you want.
Now, debt is relative when it comes to your credit score. An individual who makes $100,000 a year and has $10,000 in debt is going to be a much more attractive prospect than an individual who makes $25,000 a year and has $10,000 in debt. Banks will also look at your current debt load in terms of how much total credit you have. So an individual with $5,000 of credit who holds $500 of debt from that credit looks better than an individual with $1,000 of credit who holds $500 of debt from that credit.
No matter how large your credit line and how high your annual income, overall the less debt you have the more attractive you will look to mortgage lending institutions such as banks.
However, remember the attractiveness of your credit profile depends on not only how little debt you have but also how much free credit you have on hand. So while paying down your debt to skew this ratio in your favor is a wise move, closing out your credit once it’s paid off (and removing that open stack of credit from your profile) is a bad move.
Closing out lines of credit isn’t the only credit faux pas you can fall into when applying for a mortgage- you can also take on new debt. Using your credit cards when you’re applying for a mortgage is a very, very bad move, but it’s not the only method of accumulating new debt which you should avoid. Don’t take on car loans, student loans, or other forms of “good” debt either during the mortgage process.
Finally, when paying down your debt keep an important point in mind. Paying off accounts with collection agencies is generally a good idea because it reduces your debt load. But overall it’s significantly better to negotiate with those agencies to DELETE your accounts from all reporting agencies and bureaus. After all, having an account with a collection agency will always look bad, even if you’ve paid that account completely off.
Holding a large amount of debt is a serious problem for your credit, but so is handling that debt poorly. Perhaps the biggest credit faux pas you can make is having negative marks on your credit report from missing monthly payments or otherwise making them late. Someone who has $4,000 of debt but who makes all of their payments on time can look better to the banks than an individual who has $400 of debt but hasn’t made a payment on time in a year.
Building a negative relationship with debt is the worst faux pas you can enact when it comes to getting the mortgage you need, so make sure you keep your debt in good order well before you apply for your mortgage.
Home Valuation Code of Conduct
The Home Valuation Code of Conduct (the HVCC) offers a set of rules for the most ethical manner in which mortgage lenders (such as banks) are able to act when they commission the appraisal of a property. The actual HVCC is an industry agreement which was negotiated and accepted between the Fannie Mae , Freddie Mac and New York state and was ultimately implemented in the Dodd-Frank Act . Home valuation codes of ethics is now a national issue of contention, but there are a few important points which you need to make sure are upheld by your lender to make sure you receive a fair deal on your property.
The basic principal of the regulation is to prevent any individual who has a potential financial benefit from having any direct contact whether that be via phone, email, in person, etc with the appraiser. This is to eliminate any “leaning” or “suggested valuation” and to keep the appraisal process as pure as can be. In theory this is a very good concept that uses a middle man called an Appraisal Management Company to act as a go between the appraiser and lender and all of their employees (brokers, processors, etc).
Some of the problems with the HVCC from a consumer stand point is that the appraiser is not hired by your lender or by you and therefore does not have any incentive to perform well. The appraisers in general are making so much smaller a piece of the pie then in years past they have lost that motivation to work the extra mile for the clients. A client also does not have the insight to not go through with an appraisal until they have paid for it, even if the appraiser knew prior to doing the appraisal that the requested value was not even close to actual value.
On the upside, you will be protected knowing you are not paying too much for a property as influence and sales price are left out of the appraisal equation in terms of value. Appraisals have become under much scrutiny because of the bank owned sales, foreclosures, and short sales that are lowering values of all neighborhoods. Hopefully some of the regulation will unwind and a better formula will arise to create true value and get our real estate markets back on track.