“Myrna” writes:
My question is should refinance my mortgage now? I currently have a 30 year fixed at 6% and I also have a fixed home equity loan. My main goal is to have lower monthly payments and no pmi. I would like to know if I should wait until the end of the week and see if the rates go down again like they say they will. I know the houses in my area are going for below the market price and I don’t know if it is worth me refinancing now. We have been in our house for 3 years and we plan on staying for 10 more. I have an FHA loan now and would like to know if I do refinance which lender you recommend and when to do it.
Answer: You have a great fixed rate, and a slightly lower one may not save you enough money to be worth it in the long run…but you won’t know until you run the numbers.
I would recommend you get your three bureau FICO scores, then use that information to run a search on Lender Rate Match. That way your search results will be accurate. When you search you will be connected with one loan officer who can review your search results with you, and determine which loan programs are available.
Ask the loan officer to run a “break even” analysis for you. This will tell you how long it will take you to break even on the costs of the refinance versus the savings from a lower rate (if one is available).
I would also recommend you find out the same about refinancing into another FHA loan. If your loan officer does not offer FHA loans, you will find more information here.
As for timing rates, that’s a tough call. The market changes frequently and often unpredictably these days. Talk with your loan officer for insight, but understand he or she can’t see into the future.
If you learn you cannot refinance and are worried about being able to stay in your home due to your payments, call the Hope Now Alliance at 1.888.995.HOPE. The consultation is free and confidential.
“Barry” asks:
I need to refi my home because of divorce. The home is appraised at $255K, and the current payoff is $120K. I also have substantial credit card debt that I want to pay off (~$14K). My question is what is the effect of using your “Refi - Debt Consolidation” vs. the “Refi - Cash Out”? Thanks for your help and for this superb site.
Thanks for the question and compliment!
When you choose a refinance for debt consolidation, the lender will usually take into account the debt you want to pay off when qualifying you (ignoring the debt you are paying off in your qualifying ratios) and actually write the checks to your lenders to pay off that debt.
When it comes to cash out, you are not specifying what you are using that cash for, and lenders may limit the amount of cash out permitted.
In your case, your LTV (loan to value — or amount of loan compared to the value of the home) is so low, you shouldn’t have any trouble consolidating your credit card debt. Choose a Refinance Debt Consolidation, then talk with the lender you are matched with if you also want to take some additional money out to refinance.
A couple of other things — make sure you continue to make at least your minimum payments on your debts until the funds from your closing have been credited to your credit card accounts. I’ve seen consumers hold off on making payments, and then find late marks on their credit when the payments from the loan proceeds didn’t make it to creditors on time.
Also, it is a good idea to monitor your credit reports and scores for a while during and after your divorce, since that’s when a significant number of credit report mistakes and problems occur.
“Caryn” asks:
My question is this, the site is requesting my credit scores from the three credit bureaus. But what about my fiance’s credit scores? I’m sure those are important if we are buying a house together? Thanks!
Hopefully you have checked both your credit scores. Whichever one of you has the strongest income will likely be considered the borrower, and the other person will be the co-borrower. Keep in mind that if one of you has strong scores and enough income to get the loan alone, you do not need both apply. (You can still hold title together, and there will be paperwork for the other person to sign.)
“Marla” asks: I have $20,000 and my new husband has $9,000 in credit card debt. Should I pay off his credit card and only have 11,000 for a down payment on a house, or should I use the entire $20,000 for the down payment?
Great question! There are several things to look at here.
My first question would be: who will be getting the mortgage? Just because you are married, doesn’t mean you both have to be on the loan. Whether you decide to get a loan together, or in the name of just one of you, depends on your income, credit scores and qualifications. If your credit scores are significantly higher than your hubbie’s, and your income alone is sufficient for the loan, then you could get the loan using your down payment and keep him off the application. (In most cases, even if one of you gets the loan, however, the home title will have to be held jointly because of state property laws.)
However, let’s assume you will get the loan together. You need to get both of your three bureau credit scores to make sure they are accurate, and to see who has the higher credit scores. Usually the credit scores of the person with the highest income will be used as the primary borrower, and the other person will be the co-borrower. If your credit scores are significantly different, you may have some work to do on his (or your) credit before you buy.
The other thing to look at is what a different down payment will do to your loan options and rates. Loan programs and rates often change quite a bit when you go above certain thresholds such as borrowing more than 80% of the home’s value, 90%, or 95%. If you have enough money for a 20% down payment, for example, and your credit scores and income qualify you for a good loan, you may want to put the money into the house and then tackle the debt.
Keep in mind that the lender will be looking primarily at the “debt ratio” not your husband’s overall level of debt. To figure your debt ratio, it will take into account the required monthly payments on your mortgage (including principal, interest taxes and insurance) and other required debt payments. For your husband’s credit cards, that may mean only looking at a required payment of $200 or so, depending on the minimum payments reported for his credit card debt on his credit reports. If you don’t have much other debt (car loans, student loans, etc.) then that minimum payment may have little impact on the debt ratio or the loan.
I would recommend you run a search and then ask your lender to help you evaluate these various scenarios to find which one gets you the right loan. Remember, once you are registered, you can change your search criteria as well. So you can run the loan with the $20,000 down payment and then with a smaller one. (For the most accurate results, though, you should both have your 3-bureau FICO scores.)
Finally, the biggest challenge for you two may not be choosing a loan but marrying your different styles of handling money. It sounds like perhaps you are a saver and he’s a spender. Not only do opposites attract (as I can say from personal experience!) but, money clashes can also push apart a couple just as easily. A great book for the two of you to read together would be Olivia Mellan’s book, Money Harmony.
Good luck on your home purchase and the best to both of you!
I recently read this article by Gary Foreman and thought it was excellent.
The other night I watched a movie called “Flags of Our Fathers.” It was the story of the men who raised the flag on Iwo Jima in World War II. The main theme of the film (heroism) isn’t relevant to us here, but something did strike me while watching it. As soon as someone was wounded and went down they called for a corpsman or medic. If the wounded was injured too badly, a buddy called out for them. The many battle scenes were filled with cries for corpsmen.
With a little research, I found out the corpsman was a Navy enlisted medical specialist and a medic was from the Army. I still know only a little about the subject, but it seemed clear that it was important to get help to the wounded as soon as possible. That’s why the brave medic or corpsman was willing to risk his own life to help save a friend.
It occurred to me that there are similarities in the world of personal finance. At some point or another, we’ll probably all get wounded in the money wars. And we’ll likely fall bleeding to the ground. How quickly we stop the bleeding and dress the wound will make a big difference in our survival rate. Let’s learn the lesson of the corpsman. It’s important for borrowers to call for help as soon as they’re wounded.
Right now many people are having trouble with their home loans. If you think you’re about to fall behind in your mortgage, talk to your bank. Don’t wait until you have missed a payment. Most lenders are glad when a borrower faces trouble squarely and comes to them seeking a solution. It’s much harder for the lender if you run and hide.
The bank doesn’t want to foreclose on you. They’ll probably lose money selling your house. The best situation for them is for you to continue to make payments on your home — even if those payments are less than the original mortgage called for.
Find a way to help the lender “win” if you stay in your home. Contact your mortgage company and tell them that you’re having a problem and want to work with them to find a solution. They’re in business to make money by loaning it out. Reducing your payments and lengthening your mortgage is better for everyone than foreclosure and resale.
The same thing is true if you’re struggling with your auto loan. The lender would rather work with you. That’s easier than repossessing the car, selling it and then chasing you for the difference between what you owed on the car and what it sold for.
Now, that doesn’t mean you should call the lender anytime that your payments are a little uncomfortable. It’s up to you to eliminate the extras in your budget before you approach your
lender. If you haven’t done that, don’t expect help.
And, don’t call your lender and tell them you want reduced payments so you can buy something else. They won’t be receptive. Not because they don’t like you, but because their job is to protect their loan and make money on their investment. Helping you to borrow more money isn’t good business.
Back in the movie, one advantage that the corpsman had was that they could pretty easily tell when someone was wounded.
But, financial wounds aren’t like war wounds. There’s no blood. They’re not that visible to others and we can easily conceal them if we wish.
Often that’s exactly what we do. We try to hide our problems. We won’t address them while the wound is still fresh and can be healed.
Why don’t we ask for help? Sometimes we’re afraid to face the problem. We hope that it will go away on it’s own. Or maybe we
don’t want our friends, neighbors, and co-workers to think we’re not doing as well as we think they are. Usually pride is involved.
The funny thing is that your co-workers or neighbors don’t need to know that you have a problem or that you’re looking for a solution. You don’t need to publicize that you’re asking for help. Only you and your lender need to know.
Can we guarantee that you’ll save your home or car? No, but the sooner you clean and dress the financial wound the better your chances of a recovery.
This advice comes from Gary Foreman, the editor of The Dollar Stretcher.com website and newsletters. You’ll find hundreds of ways to stretch your dollar and your day. I love the site & recommend you visit today for more great time and money-saving ideas!
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