Your documentation allows underwriters to verify that you’re a good fit for the loan option you’ve selected. Here is a list of some of the most common documents that your loan officer may ask for: Your lender will also need to pull your credit report as a part of the refinance process, so have your Social Security number handy when it’s time to apply.
Refinancing a mortgage can potentially help eliminate private mortgage insurance (PMI), but it depends on individual circumstances. PMI is typically required when a homeowner puts down less than 20% on a home purchase. Refinancing to a new loan with a lower loan-to-value ratio may allow for PMI removal. However, it’s crucial to consider refinancing costs and current interest rates to ensure it’s a smart financial decision. Pilgrims Mortgage can assist in evaluating the situation and exploring options to eliminate PMI, ensuring a financially sound choice. Their expertise and personalized approach can guide homeowners through the refinancing process and help achieve their goals. Additionally, Pilgrims Mortgage can help determine if refinancing is the best option or if other alternatives, such as waiting for automatic PMI cancellation or using other mortgage products, are more suitable. With Pilgrims Mortgage’s guidance, homeowners can make informed decisions and potentially eliminate PMI, reducing their mortgage payments and improving their financial situation.
According to Freddie Mac’s latest Primary Mortgage Market Survey, interest rates for a 30-year fixed-rate mortgage are currently at 4.61%, which is still near record lows in comparison to recent history! The interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power. Purchasing power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford to buy will decrease if you plan to stay within a certain monthly housing budget. The chart below shows the impact that rising interest rates would have if you planned to purchase a home within the national median price range while keeping your principal and interest payments between $1,850-$1,900 a month. With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5% (in this example, $10,000). Experts predict that mortgage rates will be closer to 5% by this time next year. Act now to get the most house for your hard-earned money. Source: https://www.keepingcurrentmatters.com/2018/05/22/how-current-interest-rates-can-have-a-high-impact-on-your-purchasing-power/
What is a Loan Modification? When a lender agrees to modify a loan, they typically do so because you are facing default. Whether you are already behind or are about to become behind, the lender can modify the terms of the original loan to make the mortgage payments more affordable for you. Lenders aren’t under any type of obligation to agree to a loan modification. If they do agree to modify your loan, though, they can change the interest rate, term, or even lower the principal balance in an effort to make your loan more affordable. Lenders are sometimes willing to do this rather than face foreclosure. The last thing that banks want is to take possession of your home. They would rather that you stay in it, but in order for you to do so, you may need more favorable terms, which is where the loan modification helps. How to Get a Loan Modification There are two ways that you can qualify for a loan modification. The first is through the government program ‘Home Affordable Modification Program.’ This program has strict requirements the lender must follow in order to modify your loan. If you meet the parameters, the lender can lower your interest rate to help you avoid foreclosure. Another way is to use a bank’s private program to modify your program. If your bank owns your loan, in other words, you have a portfolio loan, then the bank is free to do whatever they want with your loan. They may have a program in place that allows them to lower your interest rate without going through the refinance process. The one common denominator between the programs is the need to show financial distress. You have to show the lender that you cannot afford your monthly payment as it is now. This could be because you lost your job, fell ill, or had unexpected major expenses. Whatever the case may be, you will need to provide plenty of proof of the hardship. The lender needs to see that the hardship is making it difficult to afford your loan and that you will eventually be at risk of foreclosure. It’s important that you get in touch with your lender right away to discuss your options, though. If you wait until you’ve missed two or three mortgage payments, you could end up facing foreclosure proceedings. Letting the lender know right away that trouble is brewing will allow them to give you more opportunities to save your home. While it is possible to lower your interest rate without refinancing, it’s generally reserved for homeowners in financial distress. In some very rare cases, you may find that a lender is willing to lower your interest rate, especially if you are about to refinance your loan elsewhere. Oftentimes lenders will take a slight loss of profit in order to keep your business, so it never hurts to ask. Source: https://www.blownmortgage.com/can-lower-mortgage-interest-rate-without-refinancing/
Adjustable Rate Mortgages (ARM)s are loans whose interest rate can vary during the loan’s term. These loans usually have a fixed interest rate for an initial period of time and then can adjust based on current market conditions. The initial rate on an ARM is lower than on a fixed rate mortgage which allows you to afford and hence purchase a more expensive home. Adjustable rate mortgages are usually amortized over a period of 30 years with the initial rate being fixed for anywhere from 1 month to 10 years. All ARM loans have a “margin” plus an “index.” Margins on loans range from 1.75% to 3.5% depending on the index and the amount financed in relation to the property value. The index is the financial instrument that the ARM loan is tied to such as: 1-Year Treasury Security, LIBOR (London Interbank Offered Rate), Prime, 6-Month Certificate of Deposit (CD) and the 11th District Cost of Funds (COFI). When the time comes for the ARM to adjust, the margin will be added to the index and typically rounded to the nearest 1/8 of one percent to arrive at the new interest rate. That rate will then be fixed for the next adjustment period. This adjustment can occur every year, but there are factors limiting how much the rates can adjust. These factors are called “caps”. Suppose you had a “3/1 ARM” with an initial cap of 2%, a lifetime cap of 6%, and initial interest rate of 6.25%. The highest rate you could have in the fourth year would be 8.25%, and the highest rate you could have during the life of the loan would be 12.25%. Some ARM loans have a conversion feature that would allow you to convert the loan from an adjustable rate to a fixed rate. There is a minimal charge to convert; however, the conversion rate is usually slightly higher than the market rate that the lender could provide you at that time by refinancing.
A mortgage is called “Interest Only” when its monthly payment does not include the repayment of the principal for a certain period of time. Interest Only MORTGAGES are offered on fixed-rate or adjustable-rate mortgages as well as on option ARMs. At the end of the interest-only period, the loan becomes fully amortized, thus resulting in greatly increased monthly payments. The new payment will be larger than it would have been if it had been fully amortized from the beginning. The longer the interest-only period, the larger the new payment will be when the interest-only period ends. You won’t build equity during the interest-only term, but it could help you close on the home you want instead of settling for the home you can afford. Since you’ll be qualified based on the interest-only payment and will likely refinance before the interest-only term expires anyway, it could be a way to effectively lease your dream home now and invest the principal portion of your payment elsewhere while realizing the tax advantages and appreciation that accompany homeownership. As an example, if you borrow $250,000 at 6 percent, using a 30-year fixed-rate mortgage, your monthly payment would be $1,499. On the other hand, if you borrowed $250,000 at 6 percent, using a 30-year mortgage with a 5-year interest-only payment plan, your monthly payment initially would be $1,250. This saves you $249 per month or $2,987 a year. However, when you reach year six, your monthly payments will jump to $1,611, or $361 more per month. Hopefully, your income will have jumped accordingly to support the higher payments or you have refinanced your loan by that time. Mortgages with interest-only payment options may save you money in the short run, but they actually cost more over the 30-year term of the loan. However, most borrowers repay their mortgages well before the end of the full 30-year loan term. Borrowers with sporadic incomes can benefit from interest-only mortgages. This is particularly the case if the mortgage is one that permits the borrower to pay more than interest only. In this case, the borrower can pay interest only during lean times and use bonuses or income spurts to pay down the principal.