Before you undertake these steps, you need to answer the question: "Should I refinance?" Here are some of the most common reasons to refinance.
•Pay less over the life of the loan
•Reduce your mortgage payment
•Trade home equity for cash
•Drop mortgage insurance coverage
•Get better loan terms
There's no such thing as a "no doc" mortgage today, which means you'll have to document your income and assets when you apply for a mortgage refinance. Be prepared to supply two years of W-2s and two most recent pay stubs, or two years of tax returns and recent financials, if self-employed. To count any other income, like pensions or alimony, you'll have to prove that you receive it and that it will continue for at least three years.
There are many products available, and you'll want to narrow down your options before shopping for a mortgage. Here's what you'll need to consider:
•Timeframe -- how long do you plan to keep your home?
•Your goal -- lowest payment, least amount of interest, better terms?
•Your qualifications -- equity, credit rating and income
Ignoring your timeframe could be expensive. That's because interest rates for 30-year fixed mortgages are significantly higher than those of hybrid ARMs, which have introductory rates that are fixed for three, five, seven or ten years. Blindly paying for a 30-year rate when you're only going to have the loan for five years could cost you. For example, as of this writing, a 5/1 is available at 2.625 percent, while its 30-year fixed counterpart is at 3.625 percent. If you refinance $300,000, the difference between the two payments is $163 per month, almost $10,000 over five years!
Your goal is important as well. Suppose you want to pay less over the life of your loan. You can do this by getting a lower mortgage rate or by shortening your term -- perhaps from a 30-year to a 15-year loan.
Finally, your qualifications -- credit, equity and income -- determine what programs you can consider. If you have little or no home equity, you'll probably be limited to government programs like HARP, FHA, VA or USDA loans. If your loan amount exceeds limits set by the government or Fannie Mae, you'll be looking for jumbo financing.
You're now ready to go. You've got your documents in order, you've chosen your rate and your program. The hard part's over for you, and the rest is up to your loan officer, underwriter, appraiser and title company.
John Cushma is a hands on Loan Officer from start to finish
For informational purposes only and is not a commitment to lend. Programs, rates, terms and conditions are subject to change at any time. Availability dependent upon approved credit and documentation, acceptable appraisal, and market conditions. Not all programs available in all areas. CrossCountry Mortgage Inc. is a Pennsylvania Corporation headquartered at 22 Rutgers Road, Pittsburgh, PA 15205. NMLS# 1423174 #3029; www.nmlsconsumeraccess.org; Equal Housing Opportunity.