How to Refinance Your Jumbo Loan

On June 22, 2014   /   Home Finance, Real Estate News  
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refinancing jumbo loan

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You’ve owned your home for a while, made timely payments on your jumbo mortgage and built up some equity. Now, you’d like to find a way to lower your interest rate or save money on your monthly mortgage payments.

Refinancing your jumbo loan could help you do that, but new rules have made it tougher to find a good deal and to qualify. (Mortgages classified as jumbo loans can vary from a minimum of $417,000 to a minimum of $625,500, depending on whether a home is located in a high-cost county.)

Here is what you need to know:

Should You Refinance?

Before you start looking for a new loan, you need to know if refinancing fits into your life plan. If you are considering selling your home in the next few years, refinancing may not make sense.

“Always look at whether the breakeven point for the savings versus the costs [is] longer than you will stay in a home,” said Jeremy David Schachter, mortgage adviser and branch manager for Pinnacle Capital Mortgage Corporation.

You will pay fees to refinance and it may take several months before you recoup those costs from the savings in your lower monthly mortgage payments.

“Loan amounts on jumbos are bigger than conventional loans, so a reduction in rate of 0.75-1.00 minimum would save a significant amount of money,” Schachter said.

Finding a Jumbo Loan

If you have had your jumbo loan for years, you may find refinancing tougher than you expected. As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, most mortgages issued are now qualified mortgages. These mortgages follow stricter guidelines set by the Consumer Financial Protection Bureau. Under these guidelines common jumbo loans, such as loans with large balloon payments and interest-free-period loans do not qualify for QM status.

While not all jumbo loans must be QM qualified, finding a non-QM loan may be difficult. However, “There is more of an appetite now for jumbo loans,” and lenders are still refinancing these products, Schachter said.

Qualifying for Refinancing

The underwriting process for refinancing jumbo loans has gotten tougher, due in part to rules set by the CFPB. Even if you were able to secure a jumbo loan with limited paperwork in the past, you may find refinancing more difficult now.

How you have managed bills in the past will have a big impact. “Credit score requirements are much higher than conventional or FHA loans,” and you will need more documentation to qualify, Schachter said.

That documentation includes:

  • Pay stubs for a minimum of 30 days.
  • Tax returns from the past two to three years.
  • Bank statements showing mortgage payment reserves for a minimum of six months.

If you are self-employed, you will likely face additional paperwork and approval challenges. “Many lenders and investors are requiring 2013 taxes to be completed, even with an extension,” Schacter said.

To help the process go smoothly, check your credit reports at least six months before you apply for refinancing. If your credit is in good shape, start getting your documentation together. And if you aren’t sure where to find a good refinancing deal, ask for recommendations.

“If you don’t know a good lender or broker,” Schacter said, “ask a friend, family member or REALTOR®.”

 

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Can I Take Over a Seller’s Loan?

On May 3, 2014   /   Home Finance, Mortgage, Real Estate News  
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assuming mortgage

By: Angela Colley for Realtor.com

Traditionally, when you buy a home, you apply for a mortgage through a lender, find a home for sale, and use a combination of your down payment and the loan amount to purchase the home. It is a tried and true method, but what if you want to skip the buying and selling process and simply take over another homeowner’s loan?

With certain loans you may be able to do that, but there is a lot to consider before assuming a loan.

The Basics

“In days long past, some mortgages were fully assumable with no qualifying required by the new borrowers at all,” said Ron Bork, senior loan officer for EverBank. Today, things are different. “Conventional mortgages are typically not assumable,” he said.

Some government-backed loans, such as Federal Housing Authority loans, are assumable, but you will have to meet the lender’s requirements and you may have to “come up with the difference between the existing balance and the purchase price,” Bork said.

What to Consider

You should start by comparing the loan amount to the value of the home.

“The balance of the loan needs to match up with the amount available for the remainder of the purchase price,” Bork said. Otherwise, you will have to pay to cover the difference.

You should also consider the current interest rates. If the interest rate on the assumed loan is close to or lower than current interest rates, it may make sense to assume it. If the interest rate is much higher, you may end up paying more in the long run.

Finally, make sure you completely understand the terms of the loan. Is the interest rate adjustable? Are there any surprise fees or balloon payments? Don’t take on a loan unless you know the terms.

Meeting the Lender’s Qualifications

When you take over a loan, “Lenders will undoubtedly use the same underwriting guidelines that they normally do,” Bork said. Meaning, you will have to be able to qualify for the loan before you can take it over.

The lender will look at your credit history and scores. While different lenders have different requirements for credit, having good scores with no delinquent accounts will give you the highest chance of approval.

Lenders will also look at your income and debt-to-income ratio. If you are carrying too many other debts, or if your income isn’t high enough to safely cover the mortgage payments every month, you may not be approved to take over the loan.

Exceptions

If you co-own a property with someone else, you may not need to go through the process of assuming the loan. For example, if you and your spouse get a divorce, you can continue to live in the home and make payments as long as your name is on the loan and title before the divorce.

If you co-own a home with a spouse or family member and that person passes away, you may also be able to simply keep the loan and home the way they are. However, ask an attorney or lender to look over the documents and facts with you to make sure.

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How a Short Sale Can Impact Your Credit Score

On March 9, 2014   /   Home Finance  
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short sale

How a Short Sale Can Impact Your Credit Score

While the United States housing market improved in 2013, at the end of the year 19% of homeowners with a mortgage owed more on their mortgage than the value of their home.

For homeowners with no plans to move and who can comfortably afford their mortgage payments, being underwater certainly can be frustrating. However, those homeowners have the option of waiting until the combination of rising home values and their continued loan repayment brings them back “above water.”

Homeowners who are struggling financially and can’t make their payments or who must relocate for employment face a bigger issue if they’re underwater on their home loan because they cannot sell their home for a profit and move. Some of these homeowners can qualify for a government refinance program or a loan modification from their lender, but others face a choice between letting the mortgage lender take their home in a foreclosure and negotiating a short sale.

A short sale simply refers to the situation when a borrower asks the lender to accept a loan repayment for less than the full amount. The amount offered depends on the sales price negotiated between the lender, the seller and a buyer. You’ll have to provide proof of a hardship such as a change in your finances that makes the payment unaffordable or mandatory job relocation.

If you’re able to get your lender to agree to a short sale, you may or may not be responsible in the future for the gap between the balance you owe and the amount actually repaid. This depends on the state where you live and your lender’s decision about seeking recourse.

Short Sales and Your Credit

Many homeowners prefer a short sale to a foreclosure because they believe there’s less of a stigma attached to a short sale and that it won’t necessarily damage their credit as much. However, both a foreclosure and a short sale can lower your credit score and will stay on your credit report for seven years. Over time, though, you can improve your credit score through credit rebuilding techniques such as paying all your bills on time, reducing your debt, and, if necessary getting a secured credit card and making regular payments.

The impact of a short sale on your credit depends on several factors, including the way your lender reports the short sale to the credit bureaus. Most lenders will use the term “settled” for a short sale, which indicates that less than the full debt was repaid. If you can negotiate with your lender to use the word “paid” your credit won’t be as badly damaged, but lenders rarely agree to that.

Your credit score could drop by anywhere from 85 to 200 points depending on whether you have been paying your mortgage on time and your previous credit score. If, for example, you had good credit of 700 or above, your score might drop even more than someone who already had a low credit score of 620 or so because of a short sale is an indication of potential future defaults on other credit, especially if the borrower with low score had been making on-time mortgage payments. If you had months of non-payment, partial payments or late payments on your mortgage, your credit score will also be lower because of the combination of the short sale and a bad mortgage history.

In spite of the impact on your credit, a short sale may be the best option if you can’t stay in your home because you can move on from your current situation and begin to rebuild your credit for the future.

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