Common Refinancing FAQs

  • 03 Aug 2015
  • Posted by Amarasco

You may feel now’s the right time to refinance your mortgage loan. However, this isn’t a decision to take lightly. Refinancing is an excellent way to lower your mortgage payment and save money, but it’s not the right choice for everyone. So you shouldn’t feel pressured or bullied into refinancing your home. It’s important that you first understand how the process works. Like most people, you might have a bunch of questions. If you’re not sure whether refinancing is the right choice for you, here are six frequently asked questions about refinancing. If you understand the process, you can make an informed decision. What is a mortgage refinance? A mortgage refinancing doesn’t just modify or adjust existing loan terms, a refinancing creates an entirely new mortgage loan. The new loan replaces the old loan. You receive a new, and often better interest rate, a new monthly payment, and refinancing can create a fresh 30-year term. There’s also the option of refinancing for 15 or 20 years. What’s the purpose of refinancing? Homeowners don’t refinance for one particular reason, rather there are several reasons to seek a new mortgage loan. Some people refinance to take advantage of lower interest rates and reduce their monthly payments, and others refinance to convert their adjustable-rate mortgage to a fixed rate. Also, depending on the amount of equity in your home, you can choose a cash-out to refinance and borrow cash from your equity. How much equity do I need to refinance? The amount of equity you need to refinance depends on the type of loan and the lender. For conventional mortgage loans, many lenders require at least 20 percent equity, although some banks have relaxed their standards and now only require five percent equity. If you refinance to an FHA home loan, you only need three percent equity. How much does it cost to refinance? Unfortunately, refinancing isn’t without costs. You will pay closing costs, which can range from two percent to five percent of the mortgage balance. If you can’t afford closing costs, some lenders waive these fees in exchange for charging a higher interest rate, or you can include closing costs in the mortgage balance. The latter option increases the total amount you owe on the property. Do I need good credit to refinance? Because refinancing creates a new mortgage loan, there’s an approval process. You have to complete a new mortgage application, and the lender will check your credit and income. Bad credit can prevent a refinancing, especially since many conventional lenders now require higher credit scores for mortgage loans. If you can’t meet a conventional lender’s requirements, you may be able to refinance with an FHA home loan. Most banks only require a credit score of 620 for an FHA home loan. Do I have to refinance with my current lender? There’s no rule that says you have to refinance with your current lender, although there are benefits to working with your present mortgage company. They know your payment history, and if you’ve been a loyal customer, they might offer the best rate and waive some of the closing costs to retain you as a customer. However, it’s always financially beneficial to compare mortgage loan quotes with at least two other banks to ensure you’re getting the best rate. A mortgage refinancing can be the solution if you’re struggling with high monthly payments and you need to take advantage of a lower rate; but unfortunately, refinancing isn’t cheap and you have to re-qualify for a home loan. If you can’t refinance, ask your mortgage lender about other provisions. You may meet the requirements for a mortgage modification, where the bank adjusts your interest rate and monthly payments without refinancing.  

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Best Loans for First Time Homebuyers

  • 07 Oct 2014
  • Posted by estarr

You've decided to purchase your first house - congratulations! You’ve hired a real estate agent and a few weeks later you find your dream home. Now you need to get the loan process started, so you research and choose a lender and before you know it you are in their office filling out papers and talking numbers.

This is the part where you will likely have numerous choices on which loan program works for you. Some programs have mortgage insurance, while others do not. Some programs require greater down payments, while others require less money down. How do you decide which program fits your needs as a first time homebuyer? Read below to sort through three of the most popular home loans.

1) Conventional

A conventional loan is what is sometimes known as a “traditional” loan. It is not guaranteed or insured by any government agency. Conventional loans do require a down payment, typically 5 percent or more. These home loans are often insured by private mortgage insurance if the down payment is less than 20 percent of the value of the property being financed. However, PMI (private mortgage insurance) can “drop off” when the loan balance is scheduled to reach 78 percent of the original value of the home. So PMI won’t have to be with the borrower forever with a conventional loan.

2) FHA

An FHA 203(b) home loan is a very popular first time home buyer loan option. This type of loan is insured by the Federal Government, and lenders are able to provide a borrower with competitive interest rates as a result. Credit score and credit requirements are generally more lenient than they are for a conventional loan. An FHA loan only requires a 3.5 percent down payment, which is the smallest amount down of any loan program, except a VA loan. However, FHA loans also require mortgage insurance, which will never drop off unless you refinance out of an FHA loan.

3) VA

In 1944, the U.S. government created a military loan guaranty program to initially help returning service members purchase homes. Since then, the program has helped more than 20 million veterans and their families with an affordable home financing situation. The VA loan has distinct advantages over traditional mortgages, such as requiring no down payment, competitive interest rates, and no mortgage insurance. However, you must meet eligibility requirements to qualify for a VA home loan. If you are active military or veteran, a VA home loan may be the right solution for your first time home buying needs.

As you can see, there are a variety of loan choices to consider when purchasing your first home. It is important to speak with your loan specialist about all of your potential options and find a loan program that fits your particular situation the best.

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Banks are still lending when the story is right

  • 30 Mar 2011
  • Posted by Admin

Traditionally, Banks have been supportive partners for their customers because they help business owners grow their businesses. One example of this support is when Banks provide businesses with the funds needed to support working capital and buy assets.  In today’s tenuous economy, it has become quite clear that securing financing can be a challenge. For many, it may feel as though going through the loan process may not even be worth it.  The combination of constant negative media reporting on the economic crisis and the severe tightening of Bank credit has made it seem as though Banks’ support has dried up. A gap now exists between the financial needs of many businesses and what Banks are willing to do to help their customers.  If the business is a start up, the gap may seem even more insurmountable. Don’t be discouraged and don’t give up hope! It is important to understand that the term Bank, as used in this article, refers to a classical and conventional view of the institution, i.e., The Bank takes our deposits and then lends money out to businesses in our community.  Basic lending principles should be geared toward mitigating risk. We now know that much of the current economic upheaval has been caused by institutions that were not necessarily adhering to that basic lending principle. It goes without saying that the financial climate has changed and in turn the way Banks now have to underwrite credit has changed.  For example, just a few years ago, the value of real estate was commonly used to support loans. In the current economy, real estate alone may not be sufficient collateral. So, in order to keep themselves well positioned, Banks need to ask more questions as part of their basic lending practices.  The underwriting and loan approval requirements are basically the same. However, because of the depressed economy, more questions must be asked, more details must be understood, and more assurances must be attained. The good news is that Banks are lending. They are being more vigilant and more stringent but they are lending. In order to help themselves in the process, there are several steps a Business owner can take when asking a Bank for a loan. The loan process starts with the story; who are the people involved?  What are their backgrounds and how have they gotten to where they are? In the case of most small businesses, the core of the business is the owner or owners. Do they have experience running a business? What else does the owner bring to the table? Several factors are considered when a Bank looks at a lending opportunity. Very often, for small business owners, personal credit history is an important factor in getting a loan.  The quality of your personal credit can influence a Bank’s loan decision.  You should be familiar with your credit history before you apply for a loan.  Negative information on your credit report does not immediately equate to a dead end.  Let the Bank know what they can expect to see on the report. Provide a detailed explanation of why the credit was reported negatively and more importantly, what you did to try to fix the negative report. An important decision making factor is the business plan. In most, if not all cases, the Bank will ask for your business plan. When you provide your Bank with a business plan, it is critical to show how the business has historically performed.  How has the company generated funds and, most importantly, how will the company make enough money to cover its expenses and pay back the loan.  Whether you are a start-up business or an existing business, the economy of the past eight months has proven that no one can rely on one scenario.  The lack of visibility and the inability to determine what will happen in the market has made the projection process very difficult.  However, you still have a product or service, you have a price in mind for this product or service and assuming you have a solid target market, you should be able to form base assumptions.  There should be several layers of the projections that play out various scenarios: best case, worst case and, most importantly, breakeven.  The Bank should be shown several repayment alternatives including cash flow from operations, collateral sale and other sources of income. Business plans are typically associated with new businesses.  With today’s economic conditions, many established businesses need to reinvent themselves.  A business plan is an effective tool that can guide even mature businesses through the process.  The elements are the same; it’s a document that describes your company’s goals and means of achieving them over a period of time. The business plan is a selling document – it sells the business to investors, stakeholders and bankers.   It is a document that convincingly demonstrates that your business can sell enough of its product or services to make a profit and pay back its debt. One of the best results of the business plan, other than helping to secure financing from a Bank, is the control it gives you and your employees.  You will become confident of the direction of your business and how you are going to get there.  In an AT&T study, entrepreneurs were asked to rate their overall success.  The 42% that had written business plans rated themselves more successful than the 58% who had not. A recent start-up loan provided by Howard Bank to a local business was the direct result of a clear business plan.  The winning elements of the plan and proposal were the clear, direct experience of the owner, the solid location and demographics of the market the business is operating in, a proven need for the business with clear differentiating factors.  The owner was also investing close to 25% of the capital needed for the project which showed clear commitment to the deal.  While the collateral support was weak in that there was not a lot of equity in their home to support the deal, the support of an SBA guaranty mitigated that risk.  The ability of the new business to generate enough cash to cover its overhead, its owner’s payroll, and the repayment of the loan was evident. So, here is the take away. Lending standards have certainly tightened, but loans are still being made. Business owners can help themselves in the loan process by anticipating and understanding what the Bank will require of them, by considering alternatives for their businesses and by providing comprehensive, well-formulated business plans.

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