Refinance Loan Process and Programs
Are you looking to refinance? There are refinance purposes and loan programs. Refinance purposes include, cash out, debt consolidation, rate and term, rehab loans, and many other.
There are a lot of loan programs out there and finding one is not difficult when you talk to a loan specialist. They can help you determine what your refinance purpose is and what loan program best fits your needs. There are more complex loan programs and simple loan programs like the FHA streamline refinance.
FHA Refinance – Streamline
FHA streamlines do not require income verification and credit scores do not matter when it comes to qualifying. Homeowners can take advantages of lowering their mortgage insurance premium and interest rates without paying for an appraisal with FHA streamline.
On January 26, 2015, FHA reduced their mortgage insurance premium (MIP). Borrowers can save tens of thousands over the life of the loan by reducing their interest rate and mortgage insurance premium.
FHA Cash Out/Debt Consolidation
Borrowers can take advantage of the FHA cash out. Cashing out with a FHA loan does not have pricing adjustments on the interest rate like a conventional cash out loan. Borrowers can cash out up to 85% loan to value ratio.
FHA 203k Refinances
Homeowners who are in need of repairs can explore the option of a 203k even if you are in a FHA loan, VA loan, USDA loan, and conventional loan.
- The FHA limited 203(k) is considered limited because costs for construction, repairs, and rehabilitation may not exceed $35,000 including all financing fees.
- The minimum FICO score is 620.
- The loan limit is up to the FHA county limit and the minimum repair amount is $5,000.
- For a FHA standard 203(k) the minimum credit score is 640.
Refinancing to get Rid of Mortgage Insurance
If your loan is currently FHA and you have 20% equity in your home, eliminating mortgage insurance can save you money. By refinancing FHA to conventional, a homeowner does not have to pay the upfront mortgage insurance premium or mortgage insurance.
Even if you do not have equity in your home, there are options with lender paid mortgage insurance.
More Information on Getting Pre-approved for a Loan
Loan-to-value (LTV) is a percentage of the loan amount to the appraised value. We have programs that will allow a borrower to borrow up to 100% LTV, such as VA Loans and USDA Loans. Refinance loan programs and creditworthiness are a major factor when it comes to lending at a higher LTV ratio.
Debt-to-income (DTI) is a ratio that takes your revolving debts, such as student loans, auto loans, personal loans, minimum payments on a credit card, or other debt obligations divided by your monthly income. DTI plays a major factor when it comes to calculating your maximum loan amount, which all depends on taxes, insurance, and home owners association dues.
FICO Credit Score
FICO Credit Scores are used by all lenders with the approval decision. FICO stand for Fair Isaac Corporation, which is a quantified measure of creditworthiness of an individual. The score is derived from a mathematical model developed by the Fair Isaac and Company in San Rafael, California, which reflect the credit risk of an individual.
The factors include past payment history, total amount borrowing, length of credit history, type of credit established, credit inquiries, and other factors. When shopping around for a new credit card, loan for a home, or when your credit is pulled, it can adversely affect your scores.
It is advisable that you authorize a lender/broker to run your credit report only after you have chosen to apply for a loan through them.
Self Employed Borrowers
Self employed borrowers often find greater hurdles with borrowing than an employed borrower due to tax returns. For most loan programs, the problem with lending to a self employed borrower is documenting the applicant’s income.
Borrowers who are employed can provide pay stubs and lenders can verify the income through their employer. In absences of verifiable income documents, the lenders rely on income tax returns, which they typically take 2 years into consideration.
Select the Right Type of Loan
There are various types of loan programs and a Loan Originator can form a loan that is right for you. When choosing a loan program, a borrower should make the most sense of their financial situation and goals while understanding the benefits of each.
Start the Loan Process
Lenders follow guidelines set by government agencies and loan approval guidelines vary depending on the loan program and terms. Some lenders have overlays on top of set guidelines, which often we see our Loan Originators close loans that others cannot. The two major factors on an approval are based on your ability to repay the loan and value of the property.
- Once the application and disclosures along with all necessary documents have been received, the loan process will start immediately.
- Once the initial documents pass set up and the underwriter reviews the documents, a loan processor and loan originator will work with you to satisfy conditions on the conditional approval/loan commitment.
- The underwriter will look at the following to determine your ability to repay along with other conditions, which an experienced Loan Originator should have reviewed prior to pre-approval
Will your income suffice to meet lending guidelines for the loan program? Loan program guidelines are set to evaluate income and debts.
What are your revolving debts? What is your score? Your credit report will be reviewed in order to determine a debt to income ratio and any lapses or delays in payments, which are considered to be explained.
Do you have acceptable funds that are necessary for a down payment, fees, and reserves?
Did the property appraise for the sales price and is it in acceptable condition? The appraiser will determine the market value.
In some cases, additional documentation is required to determine if the loan will be approved. Cooperation and completion is important to making the process go easy and closing your loan in a timely quicker:
Take the time to put detail into the application and send legible and all pages of the documents requested. Respond promptly to any requests for additional documentation – especially when your rate is locked and if you have a sales contract with a closing date.
Money has to be sourced so it is best not to move money or deposit money to a bank account without a paper trail. If you are receiving a gift, contact your Loan Originator and ask about gift letters and acceptable sources of gift funds.
It is recommended that you do not make major purchases until your loan is closed or finance anything. Consult with your Loan Originator before you make a major purchase.
- Purchases can affect the debt-to-income ratio and have an adverse affect on the loan process.
- If you plan to go out of town during the process or around your closing date, talk to your loan originator to talk about how you can work through the process to close on time.
Close Your Loan
Once all of the conditions on the conditional approval/loan commitment have been cleared, the lender will issue a clear to close. The signing will take place in front of a notary.
Go over the final closing disclosure with your loan originator before closing and make sure the documents match when closing. It is important to bring a cashier’s check or money order to closing if required.