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Gone are the days when borrowers that end up paying more than expected for adjustable rate mortgages can bail themselves out via a quick sale of their property. They have to either pay up, or refinance their loan into better terms and rates.

As a result of an increase in foreclosures and delinquencies, as well as intensified analysis from Congress and federal regulators,  the mortgage loan providers have tightened the criteria they use when determining whether or not to grant loans. In addition, the price of homes have been increasing modestly. As a result, appraisers have been tightening their estimations on value.


Mortgage lender standards tightening
No matter what your intentions are, when preparing to refinance you will have to document your income as well as the appraisal value of your home. Approval may be harder to achieve if the monthly payments consumer more than 27 percent of the gross monthly income of the borrower, or if, totaled with payments on other loans, the amount of debt being repaid consumes 35 percent of more of the income.

If you are looking to obtain cash out of your home by refinancing, it is possible that the lender may insist that your new loan account for less than 100% of the current value of your home. This is the case even if you purchased your home a few years with a zero-down payment loan.

Does your mortgage have prepayment penalties?
Before refinancing, it is important that you determine if your current mortgage has prepayment penalties. Unfortunately, when you commit to an adjustable rate mortgage, you are likely going to be hit with a penalty equaling 6 - 12 months in interest payments if you look to refinance within the first two or three years of the loan. 

It is probably not going to be easy to find whether or not your loan has a prepayment penalty. The information you are looking for can be hidden anywhere in your pile of loan documents. In addition to phrases containing the term 'penalty', be on the look-out for expressions like 'commitment period'.

Getting prepayment penalties waived
If you anticipate being hit with prepayment penalties when you refinance, talk to your lender and request that they waive these fees. Be prepared to be informed that you loan has been sold to investors and that the only way a waiver can be granted is if the investor OKs it.


Select your lender diligently
Before you refinance, you need to determine that the results will offer a long-term respite, and not a temporary one. Just because you had bad credit in the past, this does not mean you can not qualify for a loan with favorable rates and terms. Instead of applying for bad credit loan, contact us beforehand so that we can determine what type of loan you can qualify for.

Evaluating all costs involved
Anyone seeking to refinance their home loan needs to evaluate all of the closing costs and fees involved with obtaining a new mortgage. It is common for loans to be marketed as 'no cost' when in reality all of transaction expenses have been rolled into the interest rate or balance of the new loan. Typical refinancing costs include document processing expenses, appraisal fees, as well as fees for a new title search and title insurance. It is possible for you to get a less expensive 're-issue' rate on your title insurance if you use the same company that did the title for the original loan.

Before committing to a new loan, compute refinance savings!


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