Rebuilding American Homeownership: Yet Another Government Refinance Program

Another government refinance program has been proposed in Washington by Senator Jeff Merkley. The Rebuilding American Homeownership (RAH) program is for underwater homeowners who do not have their home loans with Fannie Mae or Freddie Mac. This new government refinance program is for responsible homeowners that make their payments on time and cannot receive help under the Home Affordable Refinance Program (HARP 2.0).

Help for Non-Government Backed Underwater Homeowners

If you’re underwater in your existing mortgage and are not backed by Fannie Mae or Freddie Mac this is the program for you. Rumors of HARP 3.0 removing the Fannie/Freddie requirement have yet to happen and this is the first program that could meet the needs of those left out of the HARP 2.0 refinancing party. This is rumored to include those underwater with jumbo mortgage loans. The government estimates there are three million underwater homeowners that have mortgages not backed by Fannie Mae or Freddie Mac.

Proposed Rebuilding American Homeownership Government Refinance Program

The program would create a temporary government backed trust to purchase mortgages from banks and private lenders not backed by Fannie Mae or Freddie Mac. The trust would raise money by selling mortgage backed securities and bonds to investors ensuring ongoing capital for purchasing home loans. The program proposes a 2% spread on refinance rates allowing RAH to operate without taxpayer funding. (2% seems like a lot)

The program is proposed as a short-term measure that would close down after three years when all of the loans were sold. The only requirement would be that you are current on your mortgage payments and not with Fannie Mae or Freddie Mac. The program doesn’t seem to address loan-to-value ratios over 140% because lenders must take a loss on the mortgage, which is not likely to happen.

The Rebuilding American Homeownership program would require mortgage insurance until your balance was paid down to an 80% loan-to-value ratio. Short-sales of homes in the program would not be allowed for four years.

RAH Mortgage Refinance Loans

The program proposes three choices for underwater homeowners. There is a 30-year fixed rate mortgage at 5 percent interest, a 15-year fixed rate mortgage at 4 percent interest and a combo mortgage. The 15-year fixed rate is a better deal but would offer higher payments including mortgage insurance. If you’re able to refinance under RAH you’d be paying higher refinance rates due to the 2 percent markup, which should still be lower than what you’re currently paying.

The third option includes a second mortgage loan for the loan-to-value balance over 95%. This second mortgage would not accrue interest or require payments for the first five years of the loan. This would act as a temporary mortgage reduction with minimal losses for lenders.

Will RAH Underwater Mortgage Refinancing Work?

Usually when a program sounds too good to be true in Washington, it never happens as advertised. Rebuilding American Homeownership seems to benefit underwater homeowners while limiting risk for lenders. A program like this is worthwhile as there are an estimated 3 million homeowners left out of latest version of the Home Affordable Refinance Program (HARP 2.0). It’s unclear how many of these homeowners have given up and walked away from their mortgage loans.

As with any proposed legislation it still has to make it through the House and Senate before being signed into law by the President. Stay tuned for more on the government’s efforts to bail out underwater homeowners.

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What is Streamline Refinance?

If you’re considering refinancing you’re likely to run across the term Streamline Refinance. What is a streamline refinance and does it apply to you? Despite government refinance programs like HARP 2.0, many people are having trouble qualifying for mortgage refinancing. Streamline refinance is a quick and easy alternative to mortgage refinance loans with lower costs and qualifications. Here are the basics you need to know if a streamline refinance is available to you.

Streamline Refinance Definition

The term streamline refinance usually applies to FHA home loans. The VA and USDA have their own refinance programs with different names but I’ll get to those in a moment. Streamline refinance is a way of taking advantage of today’s low refinance mortgage rates with less legwork and paperwork than conventional mortgage refinancing. For some homeowners this will be an option where their application would otherwise be denied.

There are requirements that must be met to qualify depending on the program. With the FHA for example, there must be a tangible benefit to refinancing. Lowering your interest rate, changing from a fixed rate mortgage to an adjustable rate mortgage or lowering your term length from 30-years to 15-years are all examples of tangible benefits.

In addition to demonstrating tangible benefit you must be current on your payments. There are government programs for homeowners who are unable to make payments (the Home Affordable Modification Program HAMP is one such program); however, with any government refinance program you must not have late payments.

Streamline refinance programs will not allow you to take cash out. If your goal for mortgage refinancing is to borrow against your home equity a streamline refinance is not the program for you.

FHA Streamline Refinance Program

One of the advantages of an FHA streamline refinance is that income and employment verification may not be required. There are also minimal credit requirements to meet; although, the FHA is toying with the notion of not approving homeowners that have active collection accounts on their credit reports.

President Obama lowered mortgage insurance premiums for FHA Streamline Refinance to make the program available to more homeowners.

Streamline refinance programs cut through red-tape and allow for less paperwork, faster underwriting, and lower fees. In most cases you will not be required to pay for a new appraisal. This is a rundown of the guidelines set in place by the FHA. Individual lenders can impose their own requirements so if your existing lender is giving you a hard time you can kick them to the curb and find another lender.

If your existing mortgage is an FHA home loan and is in good standing you can lower your payment and save a lot of cash at closing with the FHA streamline refinance. If you’re not with the FHA check with your lender as many offer similar programs.

VA Streamline Refinance

The VA doesn’t call the program by this name; however, the agency’s Interest Rate Reduction Refinancing Loan (IRRRL) does the same thing. The Veteran’s Administration has the same basic rules for the IRRRL program and taking cash out is not allowed. You will not need a new appraisal or income/credit verification and you have the option of rolling your closing costs into your balance. You don’t need to get a new certificate of eligibility from the VA so the process is much quicker.

HARP 2.0 Program Requirements

HARP isn’t a streamline refinance program but a government refinance program for underwater homeowners. The program requirements under HARP 2.0 allow for unlimited loan-to-value ratios; however, we’re finding that many lenders are imposing their own LTV requirements. If you’re finding your HARP application is still being denied because of your LTV try shopping around for a different lender. Community based credit unions are an excellent starting place as they have less stringent in-house underwriting requirements.

The basic requirements for the Home Affordable Refinance Program (HARP 2.0) are that your home loan is owned by Freddie Mac or Fannie Mae and they must have purchased it before May 31st, 2009. You must have less than 20% equity in your home to qualify for HARP. Lastly, you must be current on your payments with zero late payments in the last six months and only one late payment in the last year.

HARP 2.0 doesn’t have the same advantage as a streamline refinance when it comes to the paperwork and lender fees so it’s important to shop around comparing things like the origination fee.

Shop Around for the Best Deal

No matter what type of mortgage refinancing you’re in the market for it’s important to shop around for the best mortgage lenders. One of the most common mortgage mistakes is focusing only on getting the lowest refinance rates at the expense of fees.

Overpaying the loan origination fee or paying unnecessary discount points will make it much more difficult, even impossible to recoup your out-of-pocket expenses. If you don’t break even on your closing costs you’re going to be losing money no matter how great your interest rate.

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FHA Mortgage Refinancing Takes a Bite Out of Your Pocket

FHA mortgage refinancing is about to get much more expensive. For the fourth time in three years, the FHA is raising mortgage insurance premiums to offset their anticipated losses. The increase applies to all purchase and mortgage refinance loans. In fact, many lenders like Amerisave and USAA Mortgage Rates are saying it’s cheaper to refinance with a conventional home loan and avoid the FHA. If you’re considering mortgage refinancing with an FHA backed home loan, here are several things to consider so you’re not leaving cash on the table.

FHA Home Loans Require Mortgage Insurance

FHA home loans are great for homeowners that might not otherwise qualify because of poor credit. The FHA doesn’t lend the cash for your home loan; they simply insure lenders against certain losses if you default. Like any insurance this guarantee costs money which you’ll pay upfront and every year that you keep the loan. The problem lately is the FHA claims the premiums they’re collecting are not enough to offset what they’re paying out to lenders to cover losses. (Hence all the mortgage insurance premium hikes.)

This will be the fourth increase in three years which means if you take out an FHA home loan your payments will be higher than if you had taken out a conventional loan, even if you’re required to pay for private mortgage insurance.

FHA Mortgage Refinancing Advantages

FHA mortgage refinancing appeals to many homeowners because these home loans have less strict credit requirements to qualify. As for the up-front mortgage insurance, you won’t be required to hand over the cash at closing because the amount is simply tacked onto your loan balance. If you have an existing FHA home loan you could qualify for a streamline refinance, allowing you to take advantage of today’s low refinance mortgage rates without a credit check, documenting income or verifying employment. This is a huge advantage for the recently unemployed and a good reason to stay with the FHA if you’ve already got one.

Conventional Refinancing Could Save You Money

If you have a conventional home loan it may be cheaper to avoid FHA mortgage refinancing. If you’re a veteran you should take advantage of VA mortgage loans because they don’t require mortgage insurance and offer a streamline refinance option called an Interest Rate Reduction Refinancing Loan (IRRRL). The problem with conventional mortgage refinancing is that many homeowners overpay discount points and fees, negating any benefit they’re getting from mortgage refinancing.

Beware Unnecessary Discount Points & Fees

The reason fees are so important, more important than just getting the lowest refinance rates, is that if you’re not able to break even recouping your out-of-pocket expenses you’re going to be losing money. One of the most common mortgage mistakes is focusing solely on getting the lowest interest rates at all cost, including overpaying discount points. Refinance rates are hovering near sixty-year lows and any fees you’re paying to buy down already low rates are just inflating your closing costs unnecessarily.

Another commonly overpaid cost is the origination fee. This is paid to the broker or company arranging your refi and simply should not be more than one percent of your home loan amount. Lender Junk fees you’re likely to encounter include application, courier and processing fees. These can usually be negotiated down or simply find another lender that isn’t going to charge you junk fees.

How to Approximate Your Break Even Point

You can answer the question ”should I refinance my mortgage” by approximating your break-even point. This is helpful if you’re keeping the same term-length (15-year to 15-year or 30-year to 30-year) to decide how long it’s going to take you to recoup your out-of-pocket expenses. If you sell or refinance again before breaking even you’re going to be losing money. Note this doesn’t work well if you’re lengthening your term, like going form a 15-year to a 30-year home loan.

You can approximate your break-even point by adding up your total closing costs and diving by the amount your monthly payment will be going down. This tells you the number of months it’s going to take to recoup your closing costs. If the amount of time is acceptable to you it probably makes sense to go forward with mortgage refinancing.

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Cash In Mortgage Refinancing Is an Option

Are you struggling to qualify for refinance mortgage rates with today’s best mortgage lenders like Amerisave because of your loan-to-value ratio? While the President promises to submit broad based mortgage refinancing to Congress, many homeowners are qualifying for better refinance rates with cash-in mortgage refinancing. In fact, according to Freddie Mac one half of mortgage refinance transactions today paid to qualify. Here are several tips to help you decide if cash-in mortgage refinancing is right for you.

What is Cash-in Mortgage Refinacing?

Everyone’s familiar with borrowing against your home equity when refinancing; however, cash-in options are a relatively new phenomenon spurred on by the housing crisis. If you’re underwater in your existing home loan qualifying for mortgage refinancing can be difficult unless you’ve got sufficient money on hand to pay down your home loan balance to a suitable loan-to-value ratio.

According to mortgage giant Freddie Mac, 49% of mortgage refinance transactions in the fourth quarter of last year were of the pay to qualify variety. That’s the highest levels in nearly 26 years. As for those equity tapping mortgage refinance loans responsible for putting so many homeowners underwater, they’re down to 15 percent and the lowest levels in 26 years.

Is Cash-In Mortgage Refinancing Right For You?

Mortgage refinance rates are at their lowest levels in sixty years which is motivation for most to take advantage and lower their payment amount. The average homeowner saves nearly $3,000 a year by lowering their interest rate by 1.5% on a $200,000 home loan.

Should you consider cash-in mortgage refinancing? Well, first of all you have to have sufficient money on hand to buy yourself a favorable loan-to-value ratio. Second, you have to have a high enough credit score to qualify for today’s low refinance mortgage rates and pay the loan origination fee, discount points, and closing costs.

It is possible to recoup your out-of-pocket expenses, including the expenses you’re paying up front to qualify from the lower payment amount. While recouping the money you paid to qualify is actually repaying yourself it’s nice to know you’ll get that money back, including lender fees and any mortgage broker fees.

How to Recoup Your Closing Costs

The goal for cash-in mortgage refinancing is simple, lower your payment as much as possible allowing you to recoup your out-of-pocket expenses as quickly as possible. The way to do this is qualify for the lowest possible refinance rates while avoiding junk fees. The most commonly overpaid fees are the mortgage loan origination fee paid to the broker and discount points paid to the lender. There’s no sense paying discount points if the benefit you’re getting from buying down your mortgage rate doesn’t allow you to recoup the fee.

Remember to Calculate Your Break Even Point

You can figure out how long it’s going to take to get your cash back by adding up your total costs, including the cash-in and dividing by how much your payment will go down each month. This will tell you the number of months it’s going to take to break even. If you refinance or sell your home before the break-even point you’re actually losing money, no matter how low your new interest rate.

Bonus Tip: Some unnecessary fees you’ll want to avoid when refinancing your home include rate lock fees, application fees, loan processing and courier fees. These fees are pure junk and make it more difficult, even impossible to break even recouping your closing costs. Don’t be afraid to call out your lender on junk fees or threaten to take your business elsewhere. Mortgage brokers and lenders are a dime a dozen and in this economy you can find honest professionals willing to work for your business.

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How Much Does it Cost to Refinance a Mortgage Loan?

Today I’m going to discuss the question “How much does it cost to refinance a mortgage loan? “ If you’re considering today’s best refinance rates to lower your monthly payment it’s important to consider loan origination fees and closing costs when deciding If mortgage refinancing makes sense. Here are several tips before you refi to help you avoid paying unnecessary markup and junk fees when refinancing your home loan.

How Much Does It Cost to Refinance a Mortgage Loan?

The fees you pay when mortgage refinancing actually determines how good of a deal you’re getting when taking out a new home loan. The reason mortgage refinance fees are so important is that you’ll need to break even recouping your out-of-pocket expenses before benefiting from today’s best mortgage refinance rates. You can lower your payments by refinancing; however, the fees you pay can quickly turn that shiny new mortgage refinance rate into a sour deal.

Mortgage Loan Origination Fees

One of the most common mortgage mistakes is overpaying your broker’s loan origination fee. This is the fee you’re paying at closing for the broker’s (your loan originator) work arranging your mortgage refinance loan. How much should you pay for mortgage loan origination when refinancing? One percent of your home loan is a reasonable amount to pay the mortgage broker. On a $250,000 mortgage refinance loan one percent is $2,5000, representing a large chunk of your closing costs. Keep in mind that loan origination fees are negotiable and shopping around could get you a better deal. When you’re shopping for mortgage brokers it’s not uncommon to find origination fees as high as three percent; don’t fall for a broker’s sales pitch and agree to pay more than one percent.

Beware Mortgage Junk Fees

How much does it cost to refinance a mortgage loan when you factor in junk fees? More than you’ll ever want to pay. Unfortunately these unnecessary fees are common from both the broker and the lender as they’re trying to boost profits at your expense. Common junk fees include rate lock fees, processing fees, application fees, and broker courier fees. Remember you’ll need to recoup your closing costs before benefiting from your mortgage refinance rate. You can quickly calculate how long it will take you to break even by adding up all of your closing costs including the loan origination fee and dividing by the amount you’re saving each month.

Here’s an example to illustrate how to do this. Suppose you’re refinancing your home for $275,000 with a lower refinance rate of 4.5 percent. Your old mortgage payment at 6.0% was $1,650 per month. Your new payment at 4.5 percent is only $1,390 which is a savings of $260 per month. The mortgage origination fee in this case is $2,750 (assuming you’re paying one percent) plus lender closing costs of $3,500. In this example your mortgage refinance will cost you $6,250 to close, saving you $260 per month. Divide your total closing costs of $6,250 by your savings of $260 and you’ll find it’s going to take you 24 months (two years) to break even on your mortgage refi.

The Hidden Cost of Mortgage Refinancing

There are a couple of refinancing gotchas you need to know about when answering how much does it cost to refinance a mortgage loan for yourself. One applies to FHA mortgage loans. If you’re refinancing with a government FHA home loan you have to consider the cost of mortgage insurance. All FHA loans require mortgage insurance which protects the lender from certain losses if you default. Rising mortgage insurance premiums are quickly negating the benefit of low refinance rates by driving up your monthly payment. Second, you want to consider what mortgage refinancing does to your home loan’s amortization.

Mortgage loan amortization describes the process of paying down your home loan. Mortgage loans are front loaded with interest so in the early years you’ll find the majority of your payments going to interest and less to pay down the principle balance. Over time this gradually reverses and you start building equity in your home at a faster rate. The bad news is that your mortgage refinance resets the clock on your home’s amortization schedule and you’re back to stuffing money in your lender’s pockets without building much equity in your home. One way around this refinancing trap is to keep paying the same amount from before you refinanced. The difference between your old and new payment amount is to your principle balance and you’ll build equity at a faster rate.

How much does it cost to refinance a mortgage loan? The answer is different for every homeowner depending on several factors including your credit score, loan-to-value ratio and fees. I could give you a blanket amount of $4000-$6000 like many financial advisors; however, pulling numbers out of thin air isn’t very helpful at the end of the day. The short answer to the question how much does it cost to refinance a mortgage loan is it depends; however, I can show you how to pay less.

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