Are you thinking about refinancing your home? During a refinance, your mortgage loan is basically restructured. The closing process is similar to the first time you bought your home, except your existing mortgage is paid off and a new one is created.

Why do people refinance their home mortgage? The reasons include:

• They want to obtain a lower interest rate compared to their current rate.
• They want to tap into any equity they may have accumulated on their home. They can use the cash they would get back from their new loan to pay off other debts or use it for home improvement.
• They want to change the terms of their mortgage.
• Their financial situation has changed.

A Traditional Refinance

There are two types of traditional refinances. The first is when the existing mortgage balance is refinanced. The second is a “cash-out,” when a new loan for more money than the previous mortgage is issued.

In order to qualify for a refinance:

• Your finances must be in good shape.
• You must be current on your home loan payments.
• You have to have at least 5% equity for most loans.
• You’ll need to meet other requirements such as credit, loan-to-value (LTV) ratio and debt-to-income ratio.

However, during the housing crisis, many homes lost value, and they’re now “underwater,” meaning they have negative equity. If this is the case with your home, your LTV ratio may be higher than what lenders would like (typically 80%). Therefore, you may be denied a conventional refinance – even if your finances are in good shape.

A HARP Refinance 

If your home’s value has dropped, the government’s Home Affordable Refinance Program (HARP) may be the answer. HARP makes it easier for you to qualify and refinance your home if it’s underwater. An existing loan can be refinanced and insured by the FHA.

So what makes it different from traditional refinance? During a traditional refinance, the loan approval process will be similar to when you first bought you home. There will be financial checks, a property appraisal, and closing and loan fees to be paid. With a HARP refinance, the process is streamlined, so less paperwork is required. You also don’t need to get a home appraisal. And, HARP lets you refinance up to 125% of the value of your home. For more information on eligibility requirements, visit the HARP website.

Refinancing your home is a serious decision. The senior mortgage specialists at Grandview Lending can help you determine which is your best option based on your financial situation. Contact us today!

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