The Closing Costs to Refinance a Home

It's important to consider closing costs before you try to refinance your home loan, because the cost of refinancing might outweigh the benefits. We've posted a new article on this subject to help you understand the costs associated with a refinance loan.

A lot of homeowners in the U.S. are trying to refinance their homes right now. Many are trying to escape the uncertainty of their ARM loans as a result of what they've seen on the news. Others simply want to take advantage of better credit scores and/or lower interest rates to save money on the new loan.

Regardless of your reasons for pursuing a refinance loan, you need to figure out how much it's going to cost you. This will help you determine your "break-even point," which is one of the most important concepts of mortgage refinancing. Simply stated, if you pay more in closing costs to refinance your home than what you will save over the term of the new loan ... then it doesn't make sense to go forward with it.

Of course, the reverse is also true. If you get a much lower interest rate on the new loan, and you keep it for many years, the money you save could very well offset the cost of closing on the new mortgage.

Have I confused you? If so, you really need to read the new article we have posted on this subject. Don't trust a lender to tell you when it makes sense to do a refi ... find out for yourself. You can do this by determining the cost of refinancing and then using that number to calculate your break-even point.

Why It's Hard to Refinance Your Mortgage in Today's Market

Article Summary: A lot of people who are pursuing a mortgage refinance in the current economy are coming to the same conclusion. It's hard to refinance a home loan right now. This article explains why it's hard and what you might be able to do about it.

Find out if you can refinance. Get a free online quote:

It's a sad but true fact: the United States economy has hit a very rough patch. A few years back, lenders were making risky mortgage loans to people who did not qualify under normal circumstances. They were offering interest-only payment loans or loans at a very low rate for a set period in order to qualify those risky borrowers.

Flash forward to early 2008 and those "risky" homeowners could not make the payments on those loans when they adjusted to the full principal and interest payment. The banks who purchased those risky loans (commonly referred to as subprime loans) were foreclosing and taking huge losses. Next thing you know the banks themselves were in financial trouble, which meant less credit available to homeowners, consumers and businesses across the country. That leads up to where we are right now, and it's part of the reason it's so hard to refinance a mortgage loan right now.

Why It's Hard to Refinance

So what does all this have to do with you wanting to refinance your home? For one thing, banks have less money available to lend, so their lending requirements have gone back to the pre-housing boom levels. Today, many lenders will only refinance mortgages for the highest qualified homeowners with plenty of steady income, low debt-to-income ratios and (most importantly) lots of available equity.

You may fit most of those requirements, or so you think. If you purchased a home for top dollar in a real estate market that has seen a steady decline in home values, you may have some trouble getting your current mortgage financed.

For example, lets assume that I purchased a home five years ago for $550,000 with a down payment of 5% percent (or $27,500). Back then, lenders would have been happy to finance 95% of my purchase price, which would have given me a mortgage of $522,500 ($550,000 minus my down payment). I probably would have been offered an interest rate higher than I'd like, due to the fact that I only put 5% down.

So let's just say my current mortgage interest rate is 8.75%. I've seen a lot of information on television and in the newspaper that rates are at an all-time low, so I decide that now is the time to refinance my mortgage! After all, my credit is good, my income is solid, and my debt is very low. So no problem. I should be able to refinance with ease. Right? Wrong...

My bank sends out an appraiser to come up with the value of my home in today's market and the news is not so good. Based on comparable sales in my neighborhood, they appraiser determines that my home is currently valued at $450,000. Even if the new lender was willing to finance 95% of my homes' value, this would mean a new mortgage of $427,500 -- hardly enough to pay off the balance of my current mortgage (which is in the neighborhood of $518,000).

Keep in mind, this is a generous scenario. Most lenders will now only finance up to 80% of the value of the home. In the scenario above, that would only equate to $360,000 worth of financing, for a shortfall of almost $160,000. This means no refinance is in the cards for me at this time.

Of course, I used the word "hard" in the title of this blog post for a reason. While it may be hard to refinance in the current market, it's certainly possible in the right situations. There's only one way to find out. You have to get a refinance quote from multiple lenders and see what they're willing to offer.

Related articles:

• Mortgage Refinancing Explained
  
• Should I Refinance My Home Now?
• FHA Refinance Loans to the Rescue

FHA Refinance Program - H4H Hope for Homeowners

The Federal Housing Administration is doing its part to help alleviate the housing crisis in this country. The Hope for Homeowners (H4H) program offers FHA refinancing options to homeowners with adjustable-rate mortgage (ARM) loans. By helping people refinance into fixed-rate loans with lower interest rates, the FHA hopes to reduce the foreclosure rate in this country.

Find out if you are qualified for this program:

This refinancing program was launched in October of 2008 and will continue until September 2011. Every since the FHA introduced this option, people have been asking us questions about it. So here is everything we know about the FHA refinance program.

How the Refinancing Program Works

First, you would need to contact your current lender to see if you are qualified for the FHA refinance program. They have certain criteria in place (covered below), so you need to find out if you meet these criteria for the program. You could also contact a new lender to see if you are qualified.

The basic criteria for FHA refinancing include the following:

• Your current mortgage loan was originated (started) on or before 1/1/08.
• Your monthly mortgage payments are greater than 31% of your gross monthly income (as of 3/1/08).
  
• You did not intentionally fall behind on your payments.
  
• You have not been convicted of fraud in the past.
  
• You do not own other residential real estate (aside from the home you are in).
  
• You did not falsify your mortgage application in order to get the loan.
  

These are the minimum criteria for eligibility in the FHA refinance / H4H program. There may be other stipulations based on your current financial situation, your lender, etc.

FAQs About the H4H Refinance Loans

Here are some of the most commonly asked questions about FHA refinancing through the Hope for Homeowners program:

What is the purpose of this program?

The primary goal of the H4H program is to help at-risk homeowners (who may be facing foreclosure) to refinance their ARM loans into a more affordable fixed-rate mortgage loan. This will reduce the size of monthly payments for those who participate in the FHA refinancing program.

Are there any costs involved for people who want to apply?

As with any other type of loan, you will have to pay closing costs on your refinance loan through the FHA program. It's possible to roll these costs into the loan, as opposed to paying for them out of pocket. This is a question for your lender, because they will be the ones who determine your closing costs. Get an estimate of these costs up front.

How do I apply?

Talk to your lender about the paperwork they need. It varies from one lender to the next. Among other things, you will need to provide proof of income (such as pay stubs and W-2 forms), in addition to your current mortgage paperwork.

Will I get an adjustable (ARM) loan or a fixed-rate loan?

One of the objectives of the FHA refinance program / Hope for Homeowners is to help people transition from unpredictable ARM loans to fixed-rate loans with a lower interest rate. All of the loans offered through this refinancing option are fixed-rate mortgages with a 30-year term. They are also insured by the Federal Housing Administration (FHA).

Additional Resources

You can find plenty of information online about this Hope for Homeowners program. Here are a couple of websites to start with:

• Overview of FHA home loans
• Lenders participating in the refinance program