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The refinance process in 6 steps

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Looking to refinance your home?

Mortgage rates are still at historic lows, and over 12 million homeowners could benefit from a refinance in today’s environment.

But just how does refinancing your home work?

Luckily, the refinance process is relatively simple. It’s easy to explore your options and apply for a new home loan.

With a clear understanding of the refinance process, you’ll be better equipped to get approved and find the best deal. Here’s how to get started.

Start your mortgage refinance today (Jul 13th, 2021)


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Step 1: Set your refinance goals

The first step in the refinance process is to set a clear goal. Figure out what benefits you want from a mortgage refinance, and what type of loan will help you get there.

There are a number of reasons homeowners choose to refinance. For example:

  • Are you trying to save money immediately by lowering your monthly payment?
  • Are you looking to save money long-term by taking your 30-year loan down to 15-years?
  • Do you want to remove private mortgage insurance (PMI) or FHA mortgage insurance?
  • Do you want to cash out your home equity?

Taking out a new home loan can help you achieve any of these goals. But you have to choose the right refinance strategy for what you hope to accomplish.

There are three main types of refinance loans:

  • Rate and term: Lower your interest rate, shorten your loan term, or perhaps both. You can reduce your monthly mortgage payment and save on interest over the life of the loan
  • Cash-out: Tap into your home’s equity and use the cash for home improvements, debt consolidation, emergency funds, or any other purpose
  • Rate conversion: Convert your adjustable-rate mortgage (ARM) to a fixed-rate mortgage to avoid any future increases in your rate or mortgage payment

You also have to choose which loan product you’ll use: conventional, jumbo, FHA, VA, or USDA.

Many homeowners stick with the same type of loan they currently have. But switching to a different loan type could have added benefits.

Your loan officer can help you understand your refinance options and choose the best loan for your financial situation.

Step 2: Get refinance rates from several lenders

Now that you’ve decided it makes sense to consider refinancing, it’s time to get your mortgage quotes. You’ll want to apply for pre-approval with a few different lenders to make sure you’re getting the best deal on your new loan.

Refinance rates can vary significantly from lender to lender. And a lower interest rate can mean significant savings — especially over the long haul.

But remember, there’s more to it than just the lowest rate.

Refinance closing costs are typically a few thousand dollars — just like when you bought your home. And the higher your upfront fees, the more they eat into your savings. So look for the lowest closing costs as well as the lowest interest rate.

Also keep in mind that different loan programs have different refinance rates. For example, VA rates, conventional rates, and FHA loan rates can all vary a lot.

Rates can change from day to day, too, so it helps to get your refinance quotes on the same day.

Compare your refinance rates today. Start here (Jul 13th, 2021)

Step 3: Compare rates and fees

To ensure you’re getting the best possible deal, you should obtain multiple quotes from different lenders.

But, how do you even know if a lender is offering the best deal?

First, compare Loan Estimates.

The Loan Estimate is a standard three-page document provided by lenders. This form provides you with important information, including estimated interest rate, monthly payment, and total costs for the loan.

The Loan Estimate also provides additional important information that can be helpful when shopping and comparing refinance quotes.

For instance, on the second page of the Loan Estimate, you’ll be able to see and compare loan origination fees. These vary substantially from lender to lender, so shopping for the lowest origination fee can save you a lot of money upfront.

Another great tool for mortgage borrowers is located on page three.

In the Comparisons section, you can see and compare how much you’ll have paid in 5 years, how much of those payments will have gone towards principal versus interest, and you’ll also find your APR (annual percentage rate).

Finally, don’t forget to look at whether or not there are any prepayment penalties associated with your loan. Most mortgages today don’t have prepayment penalties, but check just to be sure.

Once you’ve compared your LEs side by side, you’ll have a much fuller understanding of which lender is truly offering the best deal on your new mortgage.

Step 4: Submit your documents

Now that you’ve chosen your lender and the type of refinance loan that best suits your needs, it’s time to complete your loan application and submit your documents.

This is an important part of the process as it can impact many different areas, such as the amount of time it takes to get your loan closed.

The amount of time to close your loan is significant for a number of reasons. Mainly — your rate lock. Not closing before your rate expires can result in costly extension fees.

Turning in all your documents on time helps ensure your loan will close in a timely manner.

The required documents to refinance typically include:

  • Paystubs covering 30 days
  • Bank statements from the last two months
  • W2s and/or 1099s for past two years
  • Tax returns for past two years
  • Asset statements covering the most recent 60 days
  • Proof of homeowners insurance

Other documents may be required depending on the type of loan for which you’re applying and the details surrounding your particular loan profile.

For example, someone who is self-employed will need to provide more documentation than someone who is a W2 wage earner. Someone who’s retired and receiving Social Security and/or pension will have other requirements, as well.

Additional documents may be necessary depending on your situation and the type of loan for which you are applying. Your lender will provide you with a complete list of the documents needed.

Step 5: Appraisal and underwriting

The next step in the refinance process is going through a home appraisal and underwriting.

Your lender will order a new home appraisal to verify your current home value. The underwriter will review your documents and offer conditional and/or final approval for your new loan.

Underwriting turn times can vary widely. Some lenders can underwrite a refinance loan in days, while others may take a few weeks.

The time underwriting takes depends on a lender’s current volume, the complexity of your application, and the availability of appraisers. An appraisal alone can often take one to two weeks.

As the borrower, this part of the refinance process is mostly a waiting game. But you can often shorten the approval time by providing all your documents right away and responding to additional requests as quickly as possible.

Step 6: Closing day

Closing on your refinance is the final step in the process. Well, almost.

When refinancing, you will encounter the “Right of Rescission.” This is a mandatory three-day waiting period before your loan will fund. It gives homeowners a small window in which they can cancel their refinance loan if they change their minds.

Provided you go ahead with your loan, you’ll have a closing day and sign final papers, just like on your first mortgage.

To ensure your closing day is as smooth as possible, consider the following steps:

  • Stay in close contact with your lender in the days leading up to the closing. This can help make certain all necessary documents and financial arrangements for the mortgage are in place
  • Be particularly careful not to apply for additional credit or use credit cards more than usual
  • Underwriters typically check your credit report again just before settlement. Make certain to keep your credit profile as close as possible to how it was when you applied for you loan

These days, lenders are required to issue a Closing Disclosure (CD) within three days of closing.

The interest rate, terms, and closing costs on your CD should closely mirror the ones on your Loan Estimate.

Mortgage borrowers should compare the Loan Estimate and the Closing Disclosure for any errors. You’ll want to review these documents carefully with your lender.

Start your mortgage refinance today (Jul 13th, 2021)

The refinance process: FAQ

How does the refinancing process work?

Refinancing involves replacing your current loan with a new one. When you refinance, you’ll apply for a new mortgage just like when you bought your home. Once approved, the funds from your new loan will be used to pay off your existing mortgage. This effectively replaces your old home loan with a fresh one — typically with a lower interest rate, lower monthly payment, or some other benefit.

How long does the refinance process take? 

Some lenders take longer than others to complete a refinance. Typically, banks and credit unions may take a bit longer than online lenders. Most lenders average anywhere from 30-45 days for a mortgage refinance.

How do I qualify for a home refinance? 

You’ll have to meet certain criteria for mortgage refinancing. Steady income, a decent credit score, acceptable debt-to-income ratios, and at least some home equity will be necessary to refinance.

Does refinancing hurt my credit score? 

According to FICO, a hard inquiry from a lender will decrease your credit score by five points or less. If you have a strong credit history and no other credit issues, the impact may be even smaller. And the drop is temporary. Your scores will bounce back up again, usually within a few months, assuming everything else in your credit history remains positive. Fortunately, most credit scoring companies will count multiple inquires for mortgage loan as one if they are made within a certain period of time (14-30 days). So you can apply with a few different lenders without your credit being dinged multiple times.

How much does it cost to refinance?

The closing costs for refinancing a mortgage are similar to the costs associated with buying a home. Closing costs in the U.S. generally average between 2 and 5 percent of the loan amount. That’s $2,000 to $5,000 for every $100,000 you borrow. However, there are certain costs, such as owner’s title insurance, that you won’t incur when you refinance, making refi fees slightly lower than home buying fees.

Do I need an appraisal to refinance? 

Some refinance programs do not require appraisals. FHA Streamline Refinances and VA Interest Rate Reduction Refinance Loans (VA IRRRL) typically don’t require an appraisal. For most others, an appraisal will be necessary.

Do you get money back when you refinance? 

If you are approved for it, you can absolutely get cash back when you refinance. Typically, these types of loans are considered cash-out refinances. Rates and fees can sometimes be higher for these. Be sure and check with your lender if your goal is to get cash back.

What’s the downside to refinancing? 

The primary downside to any type of refinancing is the cost associated with the loan. Even a ‘no-closing-cost refinance’ still has expenses in the form of a higher interest rate or a bigger loan amount. The other downside to refinancing is that it starts your loan over. So if your home is almost paid off and you want to cash out your equity, you might prefer a home equity loan or home equity line of credit (HELOC) over a refinance.

How often can you refinance? 

In most cases, you can refinance as often as you want. However, some lenders look for a “seasoning” period between home loans, or a certain amount of time between appraisals. Typically, you will have to wait six months before you can refinance with the same lender.

Should I refinance with my current mortgage lender? 

If you’re happy with your current lender, that could be enough motivation to refinance with the same company. But, while the benefits of good customer service are important, you’ll still want to ensure your existing mortgage lender can meet your refinancing goals before moving forward. Check with a few other lenders before signing on to make sure your current lender is really offering the lowest rates and fees.

Should you refinance?

Thanks to continued low rates and significant home appreciation, millions of homeowners have ample incentive to refinance.

However, refinancing isn’t the right move for everyone. You need to make sure a new loan will truly benefit you — whether via a lower interest rate, cash-back, or some other perk.

Check your loan options with a lender. If you can save money in the long run, a refinance is likely the right move.

Verify your new rate (Jul 13th, 2021)

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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