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Good and Bad Reasons to Refinance Your Mortgage

With interest rates dropping yet again, it’s no surprise that many people are considering the wisdom of refinancing their mortgage. Securing a lower interest rate is usually the best reason to refinance, but there are a few other scenarios that make it a sensible choice. The reverse is true too – there are certain motivating factors that will likely make a refinance a bad decision. Here are the good and bad reasons to refinance your mortgage.

What is a Refinance?

When homeowners refinance their loan, they’re paying off the existing debt and replacing it with new debt. Typically, a refinance costs between 2 and 6% of the loan principal and usually requires an appraisal, title search, and application fees. Because of these costs, homeowners should think carefully about their motivations for refinancing.

Financially Sound Motivations

There are a few sensible reasons a homeowner may investigate a refinance. In addition to a lower interest rate, they may be motivated to shorten the term of their mortgage or convert from one kind of loan to another.

Securing a lower interest rate – While the historic rule of thumb is that a refinance is a great decision if it means you’ll reduce your interest rate by 2%, even a 1% savings can mean a a lot. That’s because a lower interest rate means you’re saving money over the life of the loan, boosting the speed at which you build equity, and possibly spend less on your monthly payment.

Shortening the loan term – Falling interest rates can mean opportunity for homeowners to refinance for a shorter loan term without a dramatic change in their monthly payment.

Converting the loan – Homeowners with an adjustable-rate mortgage may be interested in converting to a fixed rate, or vice versa. There are several scenarios in which converting the loan makes a lot of financial sense, and the Cushing Team at Guild Mortgage here in Reno is happy to offer personalized guidance here.

Potential for Trouble

Not all reasons for seeking a mortgage refinance make financial sense. In some cases, a refinance can set you up for debt problems that last well into the future.

Tapping equity – From home renovations to college educations, there are lots of reasons homeowners may consider refinancing as a means of accessing their home’s equity. Whether this is justified by the argument that you’re adding value with a renovation, enjoying a lower interest rate on a mortgage loan in comparison to other loan options, or getting tax-deductible interest, the fact remains – you’re adding years to what you owe.

Consolidating debt – It may seem like a tidy way to pay down debt elsewhere, but refinancing to consolidate debt won’t necessarily sort out your money troubles. If you created a lot of high-interest debt in the past with purchases, consider carefully whether you’re likely to do it again.

The Takeaway

There are a lot of reasons to refinance a mortgage loan, and some of them are financially savvy. Remember, that 2 to 6% paid on principal will take years to recoup with the savings on the lowered interest rate, so a refinance likely won’t make financial sense if you’re planning on moving in a few years. If the goal is reducing debt, building equity, and working toward owning your home free and clear, talk to the Cushing Team in Reno today to learn more about how a refinance can help you make all of that a reality.

Loan Options – What’s a VA Loan, and Do I Qualify?

If you’re shopping for a new home and starting to consider your loan options, a VA loan is likely already on your radar. And while you may know that VA loans are related in some way to the Department of Veterans Affairs, there’s more to the story. Today, the Cushing Team in Reno is sharing everything you need to know about VA loans, including whether you might qualify.

The VA Loan

This type of mortgage is indeed insured by the Department of Veterans Affairs (VA). It’s designed for active-duty service members, as well as eligible veterans and qualified spouses of military personnel. A VA loan can be used to buy or build a new home, make energy-efficient upgrades to an existing home, or to refinance an existing loan.

While the VA itself doesn’t make loans, there are a number of lenders who will work with prospective homeowners on a VA loan. They’re guaranteed by the government, which means little risk for lenders and easier qualification requirements for borrowers.

Do I Qualify?

VA loans can be a great choice for qualified borrowers, even if they don’t have stellar credit or they don’t have money for a down payment. Generally, these qualifications include:

  • Military service eligibility (which may include surviving spouses)
  • Proof of income needed to repay the loan
  • Satisfactory credit score
  • No down payment is required for a VA loan in most cases. And unlike FHA loans, mortgage insurance isn’t needed either. However, VA loans do have what’s known as a funding fee for most borrowers, which adds to the overall mortgage cost. The funding fee can vary between .5 up to 3.3% of the funds you intend to borrow and is based on a few factors:
  • Your service role – whether you’re in the military, the national guard, or you’re a veteran or a qualifying surviving spouse
  • The down payment amount, if any
  • Loan type
  • Whether you’ve had a VA loan previously
  • VA loans also differentiate from other loan options in that there is no maximum debt-to-income limit. Borrowers should still be prepared to provide sufficient proof of their ability to repay their loans if it will exceed 41% of your monthly gross income.

While the VA sets no limits on the amount you can borrow, it does cap the insurance it provides to the lender. As a result, most lenders will set their own loan limits. Different lenders will offer different loan limits and charge different fees, so it’s a good idea to shop around.

The Application Process

Applying for a VA loan has a few different steps than the conventional mortgage process. First, borrowers need to get their certificate of eligibility. This tells the lender that minimum eligibility requirements have been met. Borrowers should compare offers from a few different VA lenders before submitting an application and providing necessary financial information. A VA appraisal will also be needed.

Interested in Learning More?

If you qualify for a VA loan and you’d like to learn more, the Cushing Team here in Reno is happy to help. We can answer your questions about eligibility, funding fees, and other details specific to this kind of loan, so contact us today.

Why is My Credit Score Different?

As a mortgage lender here in Reno, the Cushing Team spends a lot of time sharing information that we hope prospective homeowners will find useful. Some of the most common advice to those gearing up for a home loan involves reviewing your credit score. This information is often widely accessible from different websites and even your own credit card company. But people are often surprised that the credit score their lender ultimately accesses as part of the home loan process isn’t the same as the number they’ve been seeing. Here’s why your credit score is different. Continue reading “Why is My Credit Score Different?”

Here’s What Really Sets Mortgage Lenders Apart

If you’re ready to hold your nose, close your eyes, and leap into the home mortgage process, you have a lot of decisions to make on the way down. One of the big ones involves the mortgage lender with which you’ll ultimately partner. Here in Reno, there are national banks and local banks and credit unions who will compete fiercely for your business. And then there’s the seemingly limitless options you’ll find online. Programs and interest rates will vary only somewhat from one company to the next, so does it matter which lender manages your loan? It does, actually. Here’s what really sets mortgage lenders apart. Continue reading “Here’s What Really Sets Mortgage Lenders Apart”

The Advantage of Using Your Agent’s Lender

It’s common practice for real estate agents to offer recommendations for a variety of services, big and small. A good mortgage lender is one of them. And before you start wondering, it’s not because they get some kind of kickback for the referral – in fact, that’s prohibited by the Real Estate Settlement Procedures Act (RESPA). There’s actually a very good reason for a real estate agent to recommend a reputable mortgage lender, and it benefits the prospective homeowner, too. Here’s the advantage of using your agent’s lender. Continue reading “The Advantage of Using Your Agent’s Lender”

The Value of the Loan Approval Letter – And the 3 Mistakes You Might Be Making

There are a lot of hoops to jump through during the home buying process. Luckily, a trusted real estate agent can guide you away from common pitfalls, and so can an experienced mortgage lender. They’ll both recommend, or more likely insist, that a loan approval letter accompanies any offers you make on a home. These letters are a sign that you’re serious about buying a home and that you’ve already reached out to a lender for the preliminaries. It’s a bit of a formality, but it’s important nonetheless. This is the value of the loan approval letter – and the three mistakes you might be making along the way. Continue reading “The Value of the Loan Approval Letter – And the 3 Mistakes You Might Be Making”

House Hunting? Here’s What to Understand about your Debt-to-Income Ratio

Determining the appropriate mortgage amount for hopeful homebuyers involves a number of considerations and tools. A calculation known as the debt-to-income ratio (DTI) is one of them. If you’re ready to take the plunge on a new house, the Cushing Team in Reno is sharing what you should understand about your DTI ratio. Continue reading “House Hunting? Here’s What to Understand about your Debt-to-Income Ratio”

What to Know Before you use an Online Mortgage Lender

Here’s something interesting. Getting a mortgage means taking on an enormous financial responsibility, and yet, homebuyers tend to settle for the first lender that crops up. In fact, according to the Consumer Financial Protection Bureau, close to half of homebuyers don’t shop around for the right lender. Kind of startling, right? Most of us are used to researching our options online when it comes to purchases like a new laptop or shoes. Why don’t we do the same for the right lender? The catch, of course, is using the web to our advantage – for research and to compare your options – and not getting sucked in to something that’s likely too good to be true. To that end, here’s what to know before you use an online mortgage lender. Continue reading “What to Know Before you use an Online Mortgage Lender”

What Credit Score Do I Need to Buy a House?

It’s a common online search for any prospective homeowner – what credit score do I need to buy a house? There’s a short, easy answer – lenders usually want to see a minimum FICO score of 620 – but it’s also an incomplete picture. If you’re in the market for a new home, here’s what you should understand about your credit score and the bigger credit report. Continue reading “What Credit Score Do I Need to Buy a House?”