There are multiple reasons why someone might refinance their home loan. They might be pulling equity out of their property for debt consolidation or home repairs. Or someone may refinance, to move from a mortgage with mortgage insurance, to a new loan without mortgage insurance. Or perhaps you may simply refinance to decrease the interest rate on your loan.
Given that a home mortgage, is often times, the largest debt, by a long shot, for most Americans, it makes sense to try and lower the interest rate of the loan, due to the power of compound interest. Even a half of percent decrease in a home loan, might make a tremendous impact in the long term.
However, when refinancing, you also have to take into consideration, the cost of obtaining the new mortgage as well. For that reason, I am often a proponent of exploring no cost refinance loans. As we have covered in previous articles, there is a cost associated with every loan (third party fees, like appraisals, title fees, etc., will always be there).
However, there are ways to structure home refinance loans, without adding cost back to a loan. Mainly through the use of lender credits, to cover the cost of these items.
In this article, we will discuss the various options available for a no cost refinance, whether you currently have a Conventional, FHA or VA loan.
Conventional Refinance Loans:
You may refinance a conventional loan without cost, by a lender providing a credit for all costs associated with the refinance transaction. This is done by providing a slightly higher interest rate to cover all fees. Often times that higher interest rate is equal to about.25% higher than the best available market interest rate.
You will need to provide new income documentation to complete this type or refinance, but you may or may not need to have an appraisal done on your property to have this type of refinance completed.
If a lender can provide a loan with a lender credit, to cover all costs and you can reduce your interest rate by at least .50%, then a Conventional no cost refinance could make sense for you.
FHA Refinance Loans:
No cost FHA refinance loans have a streamlined approach, in that you can actually use the FHA streamline refinance program, to refinance without an appraisal and without providing new income documentation.
On an FHA streamline, lenders should be able to offer a no cost refinance without an adjustment to a higher interest rate.
In order to be eligible for an FHA streamline refinance, your existing interest rate plus monthly mortgage insurance, must decrease by at least .50%.
If you have an existing FHA home loan, that you have been paying on for at least 6 months, it makes sense to look into the FHA streamline loan or eventually converting the loan to a conventional loan, to remove mortgage insurance altogether.
VA Refinance Loans
VA loans also have a specific loan program, which is used for the purpose of reducing your interest rate. VA Interest Rate Reduction Loan (often referred to as a VA streamline), is a refinance program that is perhaps the most advantageous of the no cost loan programs. The VA Irrrl program does not require an appraisal or updated income documentation for the approval process.
Lenders should be able to cover all costs for this transaction, while providing a current market interest rate VA loan.
A VA Irrrl streamline refinance can have a .50% funding fee associated with it, for Veterans not in receipt of VA disability (the funding fee is always waived, for a Veteran in receipt of disability). However, the VA streamline can make sense, with even just a .25% drop in an interest rate.
These are just some of many options to refinance a home loan without closing costs. As always, it makes sense to speak to a licensed lender, such as Strategic Mortgage to fully qualify and see what home loan options are available to meet your specific situation.
For more information on current home loan programs and options for existing and potential home owners, please contact Bill Kamboukos of Strategic Mortgage at (480) 219-3682 or by emailing: firstname.lastname@example.org or online at www.strategicmtgaz.com
Vasilios Kamboukos – NMLS#160440