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Refinance a mortgage at the right time and for right reasons

Are you burdened with rising monthly payments and seeking better terms and conditions on your mortgage? Or, are you looking to consolidate your unpaid debts and get rid of them faster? All these mortgage scenarios and many more can be accomplished by mortgage refinancing. To get the basic idea on refinancing, go through these topics:

Do it yourself!



What is mortgage refinance?

With mortgage refinancing, you can replace your original mortgage with a new one with better terms and conditions but the new mortgage should be within your affordable limit. The same property that you used as collateral to secure the original mortgage is used to secure the new loan also. The new loan proceeds are utilized to pay off the existing mortgage. In case there is any remaining money after paying down the original mortgage, that amount can be used to meet other financial obligations.

Example: Suppose each of the two borrowers A and B took out mortgage loan worth of $500,000. Again, say after 5 years, both A and B paid down $250,000. So, for both these borrowers, remaining unpaid mortgage amount is $250,000.

Borrower A then took out another loan worth of $250,000, so as to repay the remaining balance on the existing mortgage. This depicts a case of simple refinance.

Borrower B then took out another loan worth of $350,000. Out of this new loan amount, B used $250,000 to pay down the original mortgage. B could use the remaining $100,000 to meet other financial obligations. This describes a case of cash out refinance.

The first scenario is a simple refinance while the second is that of a "cash-out refinance".


5 Reasons that make refinancing sensible

There are some strong reasons which make mortgage refinance a very sensible move. Here we delve upon 5 of those -
  • To reduce monthly payment:
    If the mortgage rate is lowered or if the mortgage term is extended, your monthly payment amount gets reduced. With reduced monthly payment, you can pay off your mortgage with more ease. In case the term of the loan is extended, you have to however pay more in interest during the whole life of the loan.
  • To switch from ARM to FRM:
    Fixed rate mortgage (FRM) offers you the certainty of making fixed payment over the term of the loan. Whereas, in case of adjustable rate mortgage (ARM), the monthly payment amount may rise or fall, depending upon the prevailing mortgage rate. So, in case of ARM, the monthly payment amount is not fixed; rather it is uncertain. If you are looking for certainty in payments, then you can convert your existing ARM to an FRM through mortgage refinance.
  • To repay mortgage faster:
    If you want to pay down the mortgage early, then you can shorten the term of the loan. However, here your monthly payment amount increases. Here, over the term of the loan, you save more in interest payments. You also attain property ownership early.
  • To combine two loans into one:
    If you have adequate equity in your property, you can then consolidate your first mortgage and the second mortgage into a single mortgage. The main advantage of this type of consolidation is that the monthly payment on the single loan is less than the combined payments on the 1st mortgage and the 2nd mortgage.
  • To pay off high interest debts:
    If you have sufficient equity in your home, you can opt for a cash out refinance. You can use the remaining money to pay high interest debts such as credit card bills, car loans, installment loans etc.


What is the best time to refinance?

You may not always be eligible for refinancing or the situation may not always be conducive for refinancing. You have to time your move correctly so as to reap its benefits. You need to check out these crucial things carefully before applying for mortgage refinancing -
  • If you have built up equity:
    You may be eligible for refinancing when you have built up equity of at least 10% in your home. However, for mortgages owned by Fannie Mae, the equity requirement is 5%. It is possible to get the refinance approval even with less than 5% equity, but in that case you may have to pay a certain sum of money to compensate for the deficiency in equity.
  • If the refinance rate is sufficiently low:
    If the current mortgage rate is sufficiently lower than the rate on the original mortgage, then it may be wise to opt for refinancing. Here, you need to follow the 2% Rule. As per the 2% Rule, refinancing is beneficial for you in case the refinance rate is 2% lower than the rate on the original loan. Here, the savings accrued from low rate outweigh the costs of the new loan after a certain period of time, which is called the break-even period. To get benefits of refinance, you have to stay in the house at least till the break-even period.
  • If you have removed negative items and paid off debts:
    Before plunging into refinancing, obtain your credit report from the credit bureaus and review it carefully. If you find some negative items such as collections or late payments, dispute those items immediately and get those items removed from your report. Prior to refinancing, pay down as much debts as possible. All these will work in your favor in getting the refinance approval.
  • If you have no late payments in past 1 year:
    If you have history of late payments in the past 1 year, then your refinance appeal may be rejected. So, before refinancing, make sure you don't have any late payments in the past 1 year.


When refinancing is not a good idea?

Despite the fact that refinance has several benefits, it is not always a good idea to go for mortgage refinancing. There are some cases when your refinance appeal is rejected by the lender or it may not fetch the desired returns. Here are some cases when refinancing is not a good idea at all-
  • If the property value has declined sharply:
    If the value of your property has declined appreciably, the remaining balance on your original loan may be higher than the refinance loan amount. In other words, with the new loan proceeds, you won't be able to pay down the original mortgage loan.
  • If you have already used up your equity:
    Your equity is the key to get approved for refinancing. If you have already used up your equity by taking out a home equity loan (HEL) or a home equity line of credit (HELOC), then going for refinancing would not be a good idea.
  • If you have only a few years left on the existing loan:
    It does not make good sense to go for refinancing if you have only a few years left on your existing loan. It is not rational to refinance the loan which you have almost paid off. If you have almost paid down a 30-year fixed rate mortgage, then it is unwise to opt for refinancing. After all, refinancing is just like taking out a new loan and all the costs associated with taking out a fresh loan are applicable here too.
If you have the right reasons and if the time is right, then you can surely seek for mortgage refinance. However, before making the final decision, do the necessary research, take quotes from different lenders, make a comparative analysis and choose your lender.
Related Readings
Related Forum Discussions
Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Is there a program for a 52 year old permanently disabled single parent as of Dec 1999? I am prevented from making additional money to continue making my monthly payment to Colorado Housing and Finance Authority as a hardship loan due to multiple operations. I have lived here 24 years. I have considered bad credit home loan mortgage refinance wih CHFA but concerned they might say no and request sign off of my loan because my financial income has recently changed due to the operations and inability to earn more money as the loan was originally set up with. Reverse mortgage or any similar program for "non senior" but permanently disabled would help.

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Jessica's picture
Jessica | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Elizabeth,

Welcome to the forums.

Let me tell you that a reverse mortgage is not generally offered to those below 62 years of age. We can obviously try and help you regarding any other loan program. But for that please request for quote with us and let us know about your loan requirements so that we can forward all the details to the Customer Care Department. They will do their level best to help you and contact you as soon as possible.

Regards,
Jessica.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

how does the CHFA's statewide Hardship Refinance program work thanks

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colin's picture
colin | Joined: June 30, 2006 02:50 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Heggelund,

Welcome to Mortgagefit forum.

Colorado Housing and Finance Authority (CHFA) has a statewide Hardship Refinance program which is used to provide financial assistance to borrowers facing foreclosure due to unforeseen & temporary financial crisis. It provides opportunity of paying off the existing delinquent mortgage and start a new 30 year mortgage.

Please go through this page to know more about the eligibility requirements to qualify for this loan as well as the procedure to apply - http://www.colohfa.org/documents/hf_hardship_factsht.pdf

Colin

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

what are the conditions/requirements for streamline refinance of fha loans and can a streamline refinance possible without going for a appraisal?

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miller_st's picture
miller_st | Joined: January 17, 2007 04:47 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Knauss,

A streamline refinance mortgage would be possible if the mortgage is a fha insured mortgage and is not in default plus the refinance is to result in lowering your monthly mortgage payments. You can get useful information on fha mortgage insurance refinance home loans from internet. Another thing is that it cannot be a cash out refinance.

Second thing you asked is about appraisal. Yes streamline refinance mortgage is possible without appraisal but one condition should be met. The condition is that the new loan amount cannot be more than the original principal amount. If you are going to refinance for the same amount then appraisal will not be required.

Miller

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pan_kul's picture
pan_kul | Joined: March 13, 2007 03:10 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If I were to refinance my condo and know that HOA is presently in litigation with developer. is it possible that I would be able to refinance my present mortgage? Also is it the right time to refinance? I would also like to know how much does it cost to refinance a house

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blue's picture
blue | Joined: October 21, 2005 09:17 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Rundgren,

Welcome to Mortgagefit discussion board.

Homeowner's Association can be venerable to legal action if it does not act on genuine problems in the building & disclose them to all unit owners.

Your chances to obtain financing can be affected by the fact that association is suing the developer. But you should inform your lender beforehand if development is in litigation.

Usually, obtaining finance is possible in such situations but the number of lenders willing to provide finance would be limited. Some lenders can ask for higher interest rate than current mortgage refinance rates and require higher equity percentage.

Do let me know if you have any other questions.

Thanks
Blue

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

me and my wife want to divorce , if she quit claims the house to me does that release her from that debt and would i have too refinance then? I don't even have a single clue regarding how to refinance a mortgage.

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helping_user's picture
helping_user | Joined: March 31, 2006 03:39 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi James,

If your wife quit claims the house to you that means she is quitting her interest from that house. If her name is not on the loan, then you are completely free to refinance home mortgage after quit claim process will complete.

Thanks

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

[quote:4f7b63307d]me and my wife want to divorce , if she quit claims the house to me does that release her from that debt and would i have too refinance[/quote:4f7b63307d]

If she is on the loan then a [url=http://www.mortgagefit.com/quitclaim-deed.html]quit claim deed[/url] will not release her from mortgage responsibility.

She will remain on the loan.

And as title ownership will change because of the quit claim deed the lender would require you to refinance the mortgage in your name.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I had taken a mortgage few years back and now want to refinance. I am not sure whether my credit will be checked again or not as I had already had a credit check when I applied for mortgage previously. Will that be sufficient to get approval for the refinance as I was okayed that time to get a mortgage?

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miller_st's picture
miller_st | Joined: January 17, 2007 04:47 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Kompenhans,

Its right that you were approved for the mortgage based on your credit profile when you had taken a mortgage. But that won't be sufficient when you go for a refinance now.

Refinance is like paying off the earlier loan and taking a new one. All the checks that were made that time will be made this time too. The lender is not aware whether your credit profile has improved or deteriorated from the time you had taken the mortgage and would check your credit now when you will apply for refinance.

Miller

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Can someone provide name of few sites where refinance calculators are available so that I can compare if refinance will be right for me or not. I am not able to find any good calculators online. thanks

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

You can try out the refinance calculators provided by this community. I hope you will be able to find out if refinancing is a good choice by using the calculators.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I have a 30 yr fxd mtg at 8.25% for $300,000 and I want to refinance it. But it has a prepayment penalty which will be $5000. I consulted one broker and he offered that I take a interim 30 yr with rate of 8.5% for an amount of $305,000 to include an extra $5000 towards coverage of prepayment penalty. It would cost me $2600 from my own funds and reduce the gain to $2400. Then I will again refinance after three months for a better rate. Payment on this interim loan would be $2345, which would have been $2100 if I had directly taken the final loan at 7.5% and 0 points. I would be losing $245/month for three months and it would reduce my gain to $1665. But still I would gain in this transaction. Should I follow what broker is suggesting?

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colin's picture
colin | Joined: June 30, 2006 02:50 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Naylor,

Broker is making you feel that you would be able to avoid paying for the prepayment penalty which is not so and you won't gain from taking an interim loan.

What you would be doing is merely borrow an amount which is equal to the PP. It will not be costing you anything out of pocket to borrow but you will be paying it back along with interest on it.

Suppose you refinance for the rate which will be offered on the final loan at 7.5% without taking the interim loan for an amount equal to the balance on the existing mortgage ($300,000). It would then cost you a prepayment penalty of $5000. So the total cost for the new mortgage would be $305,000.

In case where you take an interim loan, you pay $2600 from pocket, in addition a total of $735 in 3 months as extra monthly payments & get a loan for $305,000. So, total cost comes out to be $308,335.

By taking the interim loan you are not able to avoid paying for prepayment penalty. So whatever costs are associated with it, you are going to pay for them from your pocket.

These interim refinance mortgages which are explained to borrowers as a way of avoiding prepayment penalty are scams. These scams are used against borrowers who are more interested in how much they are paying out of pocket or receiving today & what their monthly payments are.

Colin

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If I refinance my mortgage after 5 years which is a 8% mortgage for a 30 yr term, without starting the 30 yr amortization period again and to pay off the loan in the period that was for the original loan (meaning after 5 years I want to pay off the new loan in the rest 25 years even if the loan term would be of 30 years). As per my understanding one way is to borrow an amount equaling what was the original balance and then immediately prepay a sum equal to difference between what was the original & current balance. Is this is correct method or a good method? Please help me out.

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blue's picture
blue | Joined: October 21, 2005 09:17 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Baldacci,

Welcome to Mortgagefit discussion board.

There are other ways by which it can be accomplished.

We assume that you have a $250,000 frm of 30 yrs @8%. The mortgage payments are $1834.42. If you do not make any extra payments, five yrs later balance on your mortgage will be $237,674. At that time suppose you have the opportunity to refinance for 7% with a new 30 yr mtg, but you are looking to pay this new loan off in 25 yrs instead of 30 yrs., then some options you have apart from what you have learned are:

Shorten the term:

You may make the term short for the new loan to be of 25 yrs instead of 30. Your payments will be $1679.84 instead of $1581.25, as increased payment schedule because of the shortening of the loan term. But even then the payments would be less than your current payments. Some lenders offering 30 yr term loans would allow 25 yr term at the same rate applicable for a 30 yr mortgage.

But negative to this type of approach is that most often the lender will not customize the loan as per requirement of the borrower. Like someone with a 30 yr mortgage which is 3.5 yrs old, the new loan can't be for a 26.5 term.

To borrow what was the original balance & prepay:

This option is what you have read about. In this method, you will borrow original loan amount, $250,000 for a term of 30 yrs and then prepay $12,326, which will result in shortening of your loan to a term of 25 yrs & 8 months.

This method has also some drawbacks. As you will be borrowing than what is the current balance on the loan, it will be considered as an cash out refinance and some lenders would price is higher. Additionally refinance costs would be higher because of the higher loan amount.

The last option - add to the payment:

A better alternate method is to increase the payments by the exact amount which will be required to amortize the loan over the period you want (25 yrs.). For the example that I mentioned, it would be $1679.84 payments instead of the normal payment of $1581.25. Using this method you can pay off the loan exactly in the time duration as you require.

Do let me know if you have any other questions.

Thanks
Blue

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Will refinancing go against my credit report or credit?

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larry2's picture
larry2 | Joined: June 27, 2007 02:50 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Momkim,

Welcome to the forum.

If you go for refinancing, it will not affect your score negatively. Refinance is not listed as a negative item on your credit report. Only if you default on a loan, file bankruptcy or foreclosure, then it will be reflected on your credit report.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Suppose we refinanced six months ago into a frm of 30 yr term of say 6.125. Now if loan officer is tells that it is possible to get even lower rate of say 5.75, what should be correct for me? I would have already made payments for five months, would it be right to give that up now & refinance my mortgage with this new rate?

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miller_st's picture
miller_st | Joined: January 17, 2007 04:47 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

As you would be getting lower rate by refinancing, it would be beneficial to accept this offer. But you need calculate & compare how much would be the refinance costs with the savings you would be able to make from the reduction in rate. Also check if there is a prepayment penalty clause in your mortgage and how much it would come to. Refinance costs plus prepayment penalty amount compared to savings gained from reduction in payments because of the rate reduction, this is what you have to look at before making the decision.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am staying in my current home for 5 years and I'm paying for a 30 year fixed rate loan. I will be moving out and thereby selling in the next 3 years. So do you think it is feasible to refinance with a 3/1 year ARM now?

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Welcome Timberly,

If you can manage variable payments and a higher rate of interest (because rates on ARMs have gone up), then only you should go for the 3/1ARM. But hey, just a moment, you said you're moving out within the next 3 years right? Then I don't think it is the right decision to switch to an ARM now.

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coloradoloans2007's picture
coloradoloans2007 | Joined: August 14, 2007 12:51 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

[size=9:ac0218e143][color=Red:ac0218e143]
[System detected duplicate content; converted into image][/color:ac0218e143][/size:ac0218e143]
_____________________
Francoise
Mortgage Specialist
Colorado Home Loans
--------------------------------------

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am looking to refinance my mortgage. I have been divorced recently and got the house in settlement. i plan on doing some repair work in the house that is yet to be finished. But I could also pay off the house with the money I received from the settlement. But will that be helpful for me? The other option is to refinance the house and get extra cash for the repairs. The current loan is that of a refinance at 7% rate of interest. Any advice would be appreciated.

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larry2's picture
larry2 | Joined: June 27, 2007 02:50 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Jason_Turner,

If you can pay off your mortgage and complete your repair works with the money you have received from the settlement, then it is better to do that. Otherwise you can go for refinance. But in that case, do you have enough equity to support your refinance? You have said that your current loan is that of a refinance at 7% rate of interest. So can you get lower interest rate? If so you can go for it.

Thanks,
Larry

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Larry,

If Jason has enough money to pay off the mortgage and repair work in the house; and also get lower rate in the refinance loan, then which one is better to choose?

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larry2's picture
larry2 | Joined: June 27, 2007 02:50 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Jonny,

I have said that if she have enough money to pay off the mortgage and complete the repair works of the house, then it is better to do it. Why should she go for the refinance? Only if she can't do it then she can choose the refinance option with the lower rate.

I hope you have understood now :)

Larry

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Are there any options besides foreclosure for people who have an ARM that is about to adjust to payments that they can't afford to make and the value of the house has dropped about $30,000 from what they owe on it?

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Jessica's picture
Jessica | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Guest,

Welcome to our community forums.

You can go for the FHA Secure loan program which has been recently introduced by the FHA in order to help delinquent borrowers avoid foreclosures on their properties. But the loan amount cannot be higher than the value of the home.

Moreover, cash-out refinance isn't allowed as a part of the FHA Secure program. However, the FHA would include property taxes and insurance payments into the loan amount. But in order to avail this program, you need to be delinquent on the loan at least once.

If you can prove that you couldn't afford to make the payments due to the adjusting rate on the mortgage, then there are chances that you'll be able to qualify for the loan.

Regards,

Jessica.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I need to do a refinance so that I can pay down my credit card debt. I have qualified for refinancing with low interest rate, that is available for disabled persons but until and unless the co-owner signs the note, the bank will not allow me to refinance. I don't want to do a divorce but I can't sell the house or refinance. Is there any option?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

oh, i forgot to add in..the cosinger is my spouse..he was supposed to sign but he is unreachable for a long time

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larry2's picture
larry2 | Joined: June 27, 2007 02:50 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Tsania,

If you are the co-owner of the property you cannot refinance it without the consent of your spouse. Only if he transfer the property through a quitclaim deed or allow you by signing the documents, you can get it. Otherwise it is very difficult for you. It will be better if you talk to an attorney on this regard.

Thanks,
Larry

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jenkin7's picture
jenkin7 | Joined: June 4, 2007 11:02 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hello Tsania,

It is not possible to sell or refinance without the consent of the co-owner.

Your husband has to transfer his share of property to you and only then you will be able to refinance it.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am into a refinancing deal with a California mortgage company, secured funding corporation. The closing papers have been given to me but I am not yet getting the funds. It's been 2 weeks now. The company says they're reviewing the appraisal for the refinance loan. What do I do? Do I have any legal rights here? Is this company doing scam?

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jenkin7's picture
jenkin7 | Joined: June 4, 2007 11:02 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hello Garry,

Was the appraisal done before the refinance? I think you should contact the company talk to them clearly. It may not be a scam but you should keep the contact with them.

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larry2's picture
larry2 | Joined: June 27, 2007 02:50 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Garry,

Welcome to this forum.

The company may not be a scam. But I agree with Jenkin that you should keep contact with the company and wait for some time; see what they do. If they are reviewing the appraisal for the refinance loan, then ask them when will you get the money? You can always take legal actions if you find the company is doing some kind of scam.

Thanks,
Larry

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

4 months ago I bought a home and have now started renovating the property. A part of the renovation costs include cash obtained from the personal line of credit and my credit cards. But as soon as I started withdrawing my credit card money, my score dropped from 750 to 600. I didn't understand what's going on. I had initially thought of refinance and then I would have consolidated all the loans after I had done with construction. But now that my credit score is down, I'm afraid I won't be able to get the best rate. how do I get out of this whole mess?

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jenkin7's picture
jenkin7 | Joined: June 4, 2007 11:02 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hello Susan,

If your credit score has dropped down to 600 then there are every possibilities that you won't be able to get the best rate.

As your credit score is based on the information available in your credit report, it is lowered due to the increase of unsecured debts like cash obtained from credit cards. So, a lower credit score due to these debts will increase the risk to the lender.

It would have been better if you had taken out a construction loan for this purpose.

You should try to bring down the credit card balances in order to increase your score. You may try for a home equity line of credit or a loan from your 401K account and pay off the credit card debt.

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lisa.scherzer's picture
lisa.scherzer | Joined: January 4, 2008 08:48 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Garry,

Are you sure those were closing papers? Paperwork will be sent to you after you apply for the mortgage and then when everything is signed off on, then they draw the final paperwork and you will usually sign those papers with a title company that will handle the dispursement. Most every lender will review your income. credit and appraisal before drawing final paperwork so that's why I ask.

If you did sign final paperwork then the lender still has the right to not fund the loan if there is something they don't like but this is rare since they usually review everthing before drawing the final docs. Contact the title company that handled the closing and ask them if the lender has funded the loan. If they have, then you need to demand those funds from the title company immediately.

If you did not sign the final paperwork yet, then you are still waiting for final approval to be able to do so.

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lisa.scherzer's picture
lisa.scherzer | Joined: January 4, 2008 08:48 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Susan,

Credit reporting agencies really hit your score for utilizing credit cards. They look at how much available credit you have and how much you owe. The more you owe in relation to your limits is what will bring down the score. So first off, try and pay down one credit card at a time to below 50% of the credit limit. Start with the credit card with the lowest balance and pay it down to this level, then move to the next one. After paying down even just a couple, your score should improve. Do not close credit lines since this will reduce the credit limits and therefore making it appear that you are more maxed out.

To get approved for the best rates out there, you do not need to have a perfect credit score if you have plenty of equity, and other assets to offset the lower credit score. However I would suggest paying down on a couple of credit cards first to help secure the best financing possible.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

my home was appraised at $328,000. mtg balance $143,770. I'm looking to borrow about $115,000. I refinanced in 06/03 with an interest rate of 5.825 fixed for 30 years. I plan on selling in about 5 - 6 years. My credit score is only about 600 (I think - could be slightly higher) What are my options?

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Samantha's picture
Samantha | Joined: September 16, 2005 11:59 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi del,

Welcome to the forum.

The very first that you should do is to get your credit report from one of the bureaus or check for it online at annualcreditreport.com . I am saying because you are not fully aware of your score value.

If you are thinking of a refinance, I don't see any problems in it because you have last refinanced in 2006 march and 1 year is alerady over. Most lenders require a seasoning or loan payment of 12 months for anyone to refinance again. Since you alerady fulfil this criteria, therefore you can start off talking to lenders about their offers.

Hope this helps...

God bless you.

Samantha

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lisa.scherzer's picture
lisa.scherzer | Joined: January 4, 2008 08:48 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Del,

The more you borrow against the home, the higher the rate will be. If you need to borrow the full amount to pay off your ex according to the divorce decree than that's what you will have to do.

I can tell you that the rate will most likely be a little higher than what you are paying right now. With a score of 600 it is hard to say if you will be in the mid 6's which is possible or higher. The reason is that several other factors will be taken into consideration to determine the best rate available for you such as: Assets that include checking/savings, stocks, 401K, along with your actual credit history (ie: late payments, prior bankruptcy, etc). I would work with a good mortgage broker that has access to many lenders and has the expertise to get you the best mortgage terms.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I have tons of cc debts and 3 mortgages on my home. Two of them are at 10% and 7.45% . My credit is worse as I have had missed payments default debts and judgments as well. my job is a good one and I'm lucky that it is. I have somehow avoided garnishments by arranging for payment plans. But what are my chance of a refinance as it's getting tougher going with 3 mortgages? Or should I file bankruptcy?

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larry2's picture
larry2 | Joined: June 27, 2007 02:50 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi dominique,

Welcome to the forum.

How long have you taken those mortgages? If these are more than 12 months, you can refinance. The rates are low now. So you can consider it.

Regarding [url=http://www.mortgagefit.com/know-how/filebankruptcy.html]filing bankruptcy[/url], you will have to qualify for it and it will have a huge negative effect on your credit. So I think Bk should be your last option to choose.

Best of luck,
Larry

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I have a first and [url=http://www.mortgagefit.com/second-mortgage.html]second mortgage[/url], 50 days late on first loan and 110 days late on the second. I am trying to refinance now. I am right now on a forbearance agreement with the first lender but I cannot afford the payments. it is twice my actually payment and hurting me a lot. What should I do? Refinance both or any one..my credit is the worse

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