Contributed Article : Five Reasons to Refinance - Five Reasons to Refinance Your Mortgage

There is an old adage that says if you can improve your interest rate by at least two percentage points, then it is a good time to refinance. While that may work as a general rule of thumb, the truth is there are other reasons to refinance:

Top 5 Reasons to Refinance

• Reason to Refinance #1. Lower Your Monthly Payment
  Securing a lower interest rate is historically one of the top reasons for refinancing, but in today's market, the most popular reason has been to secure an alternative loan with a Minimum Payment option, allowing you to dramatically reduce your mortgage payment. This can make a big difference in your monthly out-of-pocket costs for housing and save money on financing fees.
  
  
• Reason to Refinance #2. Build Equity Faster
  If you are in a position to make higher monthly payments due to an increase in salary or other good fortune, you may want to switch from a 30-year loan program into a 15 or 20-year loan structure. This enables you to build equity faster and save a tremendous amount of money on financing fees. To build equity faster without spending substantially more money per month, consider bi-weekly mortgage refinance options, a great reason to refinance.
  
  
• Reason to Refinance #3. Change Your Loan Program
  Many homeowners who start with Adjustable Rate Mortgages desire to move to the stability of a Fixed Rate mortgage later on down the road. As interest rates fluctuate, making original deals less attractive, people will change their loan programs in order to capitalize on the best rates available. If your ARM mortgage is adjusting, this can be a great reason to refinance into a loan with a fixed payment period, which can range from 3 to 50 years.
  
  
• Reason to Refinance #4. Credit Score Has Improved
  A Great reason to refinance is to take advantage of better credit scores. If your credit score has improved as a result of making your mortgage payments on time and in full, you may be in a position to take advantage of your improved credit standing by Hybridrefinancing into a loan with lower payments. If you have been good about paying your mortgage on time for the past 2 years, you may qualify for a HybridMinimum Payment refinance even if your credit scores are not so great.
  
  We can review your current credit report, the terms of your existing mortgage, and review options for other loan programs that could not only reduce your monthly payment, but also save on interest fees paid over the life of the loan or put more Cash Flow in your pocket each month.
  
  
• Reason to Refinance #5. Use the Equity You Have Established
  A cash-out refinance allows you to tap into the equity you have built up in your home. You may want to consolidate your debts and pay off revolving credit card accounts, send a child to college, or use the money for home improvements or personal expenses.
  

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Other Reasons to Refinance:

You may consider refinancing if you have a variable rate second mortgage which you would like to roll together with your first mortgage, for one lower monthly payment which is fixed.

Traditionally in days past, the primary reason to refinance was to lower the interest rate. Nowadays, with the huge variety of different loan programs that each offer some specific financial advantage to a homeowner depending on his particular situation, lowering the rate is no longer the primary reason for a homeowner to refinance.

Getting a Mortgage after a Bankruptcy - Traditional mortgage financing dictated lending after seven to ten years after a bancruptcy. Today, a mortgage can be obtained after only 1 day from release.

After bankruptcy, it is also important to make sure that the customer seriously review their options to refinance and take cash out for debt consolidation with the goal of reducing the amount of the overall monthly bills they have into one low payment, which is much more readily manageable than a menagerie of high interest accounts.

To qualify for a conforming loan, a bankruptcy must have been discharged at least 4 years ago. Alt A and subprime loan programs may still be an option if it has been less than 4 years since the bankruptcy has been discharged.

When choosing among different bankruptcy mortgages, applicants should keep in mind that they are likely to refinance within a few years, after they rebuild the credit profiles through better credit management. Therefore, bankruptcy mortgage loan applicants should consider bankruptcy loan programs with lower starting interest rates, such as Hybrid mortgages with a lower fixed rate for the initial two or three years.

Also you will find lenders that will loan even if you are in the middle of a chapter 13. FHA guidelines are 1 year from the file date. You have conventional lenders that will refinance your home if you have equity and are paying your chapter 13 payments on time. This is called a chapter 13 buyout. What's nice is you completely rid yourself of the debt in the chapter 13 using your equity to do so allowing you to be fully discharged from the BK. You will have to gain permission to do so from the court but it's very rare to be turned down.

Documentation requirements for Mortgages -

• Full Documentation: Both income and assets are disclosed and verified, and the income is used in determining the applicants ability to repay the mortgage.
• Stated Income - Verified Assets: Income is disclosed and the source of the income is verified, but the amount is not verified. Assets are verified and must meet an adequacy standard such as, for example, six months of stated income and two months of expected monthly housing expense.
• Stated Income - Stated Assets: Both income and assets are disclosed but not verified. The source of the income, however, is verified.
• No Income - No Assets: Neither income nor assets are disclosed.
• No Ratio: Income is disclosed and verified but not used in qualifying the borrower. The standard rule that the borrowers housing expense some specified percent of income is ignored. Assets are disclosed and verified.
• No Income: Income is not disclosed, but assets are disclosed and verified and must meet an adequacy standard.
• Stated Assets or No Asset Verfication: Assets are disclosed buy not verified, income is disclosed, verified, and used to qualify the applicant.
• No Asset: Assets are not disclosed, but income is disclosed, verified, and used to qualify the borrower.
• No Income - No Assets: Neither income nor assets are disclosed.

If you qualify, generally the fast closings occur with stated income or no documentation required loan programs. As a rule of thumb, the more documentation provided, the longer it may possibly take t close the loan, however we are often able to lend you more money at a better rate if more documentation is provided.

The method of documentation that a lender's underwriter will perceive to have the lowest risk factor is W-2 income backed up by two years of actual W-2 statements and one complete month of paycheck stubs. The underwriter will want to be comfortable that they are issued by a legitimate company or organization. Pay stubs or W-2 statements that are handwritten rather than computer or machine generated will cause a red flag.

Generally, the more documentation you can provide to the lender, the smaller the risk is to the lender, which in turn gives you a better rate.

A qualified mortgage professional will look at your whole financial situation and can make recommendations on that type of income will suit you best.

What is Alternative Documentation - Alternative Documentation is xpedited and simpler documentation requirements designed to speed up the loan approval process. Instead of verifying employment with the applicants employer and bank deposits with the applicants bank, the lender will accept paycheck stubs, W-2s, and the borrowers original bank statements.

Alternative Documentation (Alt Doc) loans differ from Full Documentation (Full Doc) loans in that Alt Doc loan programs do not require the usual income and assets verifications from a third party (the applicant's employer or the depository bank where the loan applicant keeps the down payment funds). Full Doc loans often require such third party verifications and therefore the underwriting process takes longer.

It is now possible to obtain an alternative credit report accredited by the National Credit Reporting Association (NCRA).

The usefulness of this documentation type is obvious; it allows the borrower to speed up the process for underwriting. While you may ask your loan agent for this type of documentation, certain restrictions may apply in order to qualify.

Alternative documentation types can allow borrowers with non traditional sources of income to qualify for loans.

A good example of a borrower who would need to use alternative documentation would be a plumber who works a regular 40 hour per week job but also works after hours and weekends doing "side" jobs. Many such folks earn a significant portion of their overall income this way and would have a difficult time proving this income with traditional methods.

Another option to consider if it is difficult or impossible to verify your income, employment and assets is to No-Doc. A No-Doc loan requires No Documentation of income, employment or assets. You do need a good credit score to go No-Doc and will pay a slightly higher interest rate in some cases but if verification of income, assets and employment is a problem, consider going No-Doc.

Any alternative credit accounts you use must have a good payment history and be open for a minimum of 12 months. Canceled rent checks can also be used for an alternative crdit account.

Alt A and subprime lenders also allow other documentation types such as bank statements, business bank statements, and/or verifcation of employment to satisfy income documentation requirements. Check with your broker to see what programs will work best for you.

Only in recent years have we as mortgage professionals been able to work with alt doc type loans. In the past you had to put down 20%, provide proof of everything and have great credit to buy a home. Now we have to ability to pick from multiple loans programs that fit just about anyones profile.