The Truth About Refinancing Your Home Mortgage

Home refinancing isn’t for everyone, but how do you know if it’s right for you? Here’s the truth about refinancing your home mortgage so you can make the decision that will work the best for you.

What is Refinancing?

Refinancing your mortgage is a way to help homeowners achieve a lower interest rate, change to a different term length, etc. all while keeping the same mortgage.

You are simply going through a process to adjust the terms in favor with your goals.

What is the Advantage of Refinancing Your Home?

There are many benefits to refinancing your home, the most popular being to lower the interest rate, which results in lower mortgage payments. This also allows you to pay less on your home overall.

If you are looking to pay off the home in a shorter period, refinancing will allow you to adjust to a shorter term. This will help you build home equity much more quickly, in exchange for a higher monthly mortgage payment.

When Should You Refinance Your Home?

If you are looking to lower your interest rate, it would make the most sense to refinance when interest rates are lower than your current rate with a difference large enough to where it would make a difference in your monthly mortgage payments and is worth the cost of 3% – 6% of your loan’s principal.

The typical rule of thumb is that you need to see a difference of at least a 2% decrease in your interest rate for refinancing to make sense, although some people say that 1% makes a significant enough dent to be worth it.

If you are looking to shorten the term of your loan, it makes the most sense to refinance when there’s also a large drop in your interest rate, so that you aren’t seeing as major of an increase in your monthly mortgage payments. You will want to calculate what this looks like to determine what’s worth it for you, personally.

Is There a Downside to Refinancing?

If you are refinancing, leading to more years that its going to take for you to pay off your mortgage, you may be digging yourself deeper into the debt hole in which you may owe debt for much longer than necessary.

If you are refinancing to lower your monthly payments, make sure to only do this if you do not plan to excessively spend what money you have saved, or else you may have just extended the period you have debt only to wind up back where you started.

Make sure you have the right expectations and goals in mind for refinancing to determine whether it’s right for you to avoid any negative effects refinancing may have.

How Long Does it Take to Refinance a House?

Refinancing on your home mortgage can take as little as 30 days and up to 45 days on average.

This could extend to 60 days if there are any bumps along the road. This is similar to the process when you initially made your home purchase.

How Soon Can You Refinance Your Home?

Typically, you have to wait at least 6 months after your home purchase to be able to refinance. Some companies require up to 24 months before you are able to refinance.

Can You Get Denied for a Refinance?

Yes. This could be due income amount, credit worthiness, etc. This is the same as when you initially purchased the house.

You want to try and keep your credit and income equal or higher than it was when you made your purchase to ensure approval when it comes time to refinance.

What Documents Do I Need for Refinancing?

Just like when you made your home purchase, you will need to have:

• Pay stubs/proof of income
• W-2s for the past couple years
• A Credit Report
• Outstanding Debt Statements (for debt-to-income ratio)
• Statement of Assets (to determine you have enough cash for fees, which are typically two months mortgage payments, as well as closing costs)

How Much Income Do I Need for Refinancing?

The common guide is that your mortgage payment should only be up to 30% of your total gross income monthly. It is also recommended that your total debt of the household should only take up to 40%.

Do You Get Money Back if You Refinance Your Home?

There are ways for you to refinance where you will get money back, otherwise it’s typically done to reduce your mortgage payment or change the term. If you are looking at getting cash back directly, you would want to look into a cash-back or cash-out mortgage for refinancing.

Is it Better to Get a Home Equity Loan or Refinance?

You would want to weigh the pros and cons of each to determine which is right for you.

With a Home Equity Loan, the interest rates are generally lower than your standard mortgage loan; however, if you fail to make a payment on your loan or line of credit, the lender can come after your house.

If you are refinancing, you may pay higher interest, but do not run the same risks as with a Home Equity Loan.

What Credit Score do I Need to Refinance My Home?

The most common score is a minimum between 620 and 680 to refinance your mortgage. If you are switching to an FHA loan from a non-FHA loan, the minimum score is 580.

What Happens to Equity When You Refinance?

The result of what happens to your equity depends on what happens during the refinancing. Your equity may grow quicker if your interest rate is reduced or if you shorten your loan term.

If you need assistance with closing costs with the refinance, you may have to use some of your equity to cover those costs.

If you are doing a cash-out refinance, the cash you receive could be a direct withdrawal from the equity in your home. Typically, you only have 80% of your equity available to cash out from, leaving at least 20% remaining.

Can I Refinance My Home with No Closing Costs?

Yes! A no-closing cost refinance is an option – just keep in mind that this doesn’t mean you won’t have to pay anything to refinance.

Some mortgage companies will put you at a higher interest rate when refinancing if they waive the closing costs.

In most cases, it’s better to take the lower interest rates and pay the closing costs versus waiving them and not take as large of a savings with the interest.

If you don’t plan to stay in your house long-term (5 years or more), this may be a better option for you, because the monthly payments you will pay may not equate to the closing costs you would have paid.

Does Refinancing Hurt Your Credit?

Since a credit report is run when refinancing, you may notice that your credit score drops slightly.

Be sure to take this into consideration before refinancing to ensure that drop won’t have a drastic effect on where your credit score stands currently.

Do I Need a Down Payment to Refinance?

A down payment is not required when refinancing, but there will be closing costs associated that you will need to be aware of.

These can be upwards of $5,000, so make sure that you have the means necessary to complete the refinancing process ahead of time to avoid any hiccups along the way.

Can I Refinance with No Equity in My Home?

You can refinance with no equity, although there aren’t as many options available. If you are consistently paying your mortgage on time, you will have a higher chance of approval.

Typically, at least 20% equity is required for refinancing, but you may be able to swing it with the Home Affordable Refinance Program.

Does Refinancing Cost Money?

Refinancing a mortgage does cost money due to closing costs being present. This can cost you anywhere from $1,500 to upwards of $5,000. These fees are to cover appraisal fees, recording fees, title fees, etc.

Is it Cheaper to Refinance with Your Current Lender?

It might be cheaper to refinance with your current lender, or it may not. You will need to do research to see what is the best fit for you.

While working with the same lender you used for your purchase can make the process more convenience, since they are already familiar with you, but they may not necessarily be the best option to go with for refinancing.

Does Refinancing Start Your Loan Over?

Refinancing does not necessarily start your loan over, depending on how it’s done. If you are keeping the same loan, refinance for a lower interest rate a couple years after owning the home, and stay with a 30-year fixed mortgage, for example, then you are simply extending the period that you will be paying off your debt.

If you are 10 years in, and refinance from a 30-year fixed mortgage down to a 20-year with a lower interest rate, then you are still on track as you were before, just with potentially higher monthly payments depending on the difference in interest rates.

What Does Dave Ramsey Say About Refinancing Your Home?

“If the interest that you save as a result of refinancing will repay the closing costs within a couple of years, then it is worth refinancing your home.” – Dave Ramsey

Keller Mortgage for Refinancing

With Keller Mortgage, if your loan is over $150,000, you will get $1,000 back towards your closing costs, plus competitive interest rates.

*This video was recorded December 2019, interest rates and details are subject to change. Call (702) 838-7700 if you are interested in knowing what the Las Vegas market (and surrounding areas) currently holds for your home.

Your Las Vegas Real Estate Team

If you’re looking to refinance your home and have questions – or even know someone in the market to buy or sell, our team is here to help. Give us a ring at (702) 838-7700 or email us at info@lasvegashomessold.com