Nationwide, we’ve seen a hot seller’s market, with sale prices going up and overall inventory remaining low. The good news? Mortgage rates have stayed at an all-time low. So even with the current trends, it’s a great time for buying a new home or refinancing your mortgage.

If you’ve heard about the new and upcoming refinancing fee imposed by the Federal Housing Finance Agency (FHFA), however, you might be wondering how that will affect your plans. Keep reading to learn about what you can expect.

What Is the New Fee, Exactly?

Here’s the gist on the new fee: starting on December 1st of this year, the FHFA will begin imposing a 0.5% refinancing fee on any new refinance mortgage. Known as the Adverse Market Refinance Fee, it was originally supposed to take effect on September 1 — but this was met with a lot of opposition among political leaders, lenders, and consumer interest groups.

As people spoke out about the fee, noting that it would dampen one of the few economic bright spots in our country today, the FHFA postponed the start date to December and added a few exemptions. Under the new guidelines, you can avoid the fee if:

• you lock in your rate prior to December 1,
• your loan amount is below $125,000,
• you’re working with a direct or portfolio lender, or
• you have a jumbo loan or a low-income government-backed mortgage (FHA or VA loans, for example) that doesn’t adhere to typical Fannie Mae or Freddie Mac standards

But, what gives? Why add a refinancing fee for the typical homeowner?

Freddie and Fannie have said the new fee is necessary to protect against risk and losses during a tumultuous economic time, as well as to help pay for various forbearance programs and moratoriums on foreclosure and evictions.

With the average 30-year fixed-rate mortgage lingering around 3% APR since the spring, some argue that the fee makes for an easy target as many homeowners look to lower their monthly mortgage payments via refinancing. Mortgage software giant Ellie Mae reported that refinancing accounted for a whopping 65% of their closed loans in May, compared to a low 32% in May 2019.

How Will the Fee Affect Homeowners?

As a homeowner, there are a few things you should know right off the bat.

First, there is not a requirement for lenders to pass the fee on to their consumers. Meaning, lenders might choose to eat the cost, given the high profit margins they’ve seen as the refinancing applications keep rolling in. Though we can’t say for certain what will happen (and each lender is free to make that decision individually), it’s still a possibility.

If the lender does opt to charge the consumer, there are a few ways they can incorporate it into the loan:

• It can add it into the loan amount
• They might increase your interest rate
• They can include it as part of your closing costs

Of course, this is in addition to the typical fees associated with refinancing, which include application fees, credit check fees, appraisal or home inspection fees, discharge fees, Lenders Mortgage Insurance (LMI), and state registration fees (where applicable). On average, mortgage refinancing fees are around 2% to 6% of your total loan amount.

That being said, there are still plenty of good reasons to refinance, even if you’re hit with the extra fee. With the record-low rates, the impact on your monthly mortgage could still be significant. The average savings is around $300 a month, which is nothing to sneeze at. (Check out this handy calculator from NerdWallet to estimate your savings.) It’s predicted that the fee might reduce those savings by a mere $15 per month.

Why We Still Recommend Refinancing

Knowing this information, should you still move forward with refinancing?

Our answer is a resounding yes.

The potential for monthly savings is the biggest reason why we still recommend refinancing, even if you’re not able to lock in your rate prior to December. Other benefits include the opportunity to repay your loan faster (by switching from a 30-year to a 15-year, if that’s the right situation for you), removal of your mortgage insurance (if applicable), and the ability to extract equity by opting for a cash-out refinance.

Here are some good tips to keep in mind, though:

• Make sure the time is right. Similar to selecting the right time to buy a new home, make sure you’re set up for refinancing success. If you have a good debt-to-income ratio, a great credit score, and you’re comfortable at your monthly spending levels, it’s worth looking into.
• Shop around. Don’t automatically go with the same lender as your original mortgage, even if you feel like you’re in a rush to get things done before December. Not all lenders charge the same fee, so take your time to shop around.
• Work with an alternative mortgage lender, for better inventory. Rather than acting as the direct lender (like a traditional bank would), mortgage marketplaces like Mortgage Goat act as “middlemen” that connect loan originators to clients. This means that they offer prospective buyers a number of lenders from which they can choose. You then have the flexibility to select a lender with a mortgage rate that best suits their needs and finances.

Refinance with Mortgage Goat

Here at Mortgage Goat, we’re here to help you at every step of the process, whether you’re getting a new mortgage or refinancing a current one. With a great plan in place and a partner like us, you can reduce your monthly mortgage payments so you have more leftover in your pocket. We work with over 100 lenders to secure you the best rate out there, and all you have to do is take a few minutes to fill out our simple, 100% online application.

Ready to learn more? Contact us to start your pre-approval instantly.

The post Everything to Know About the New Refinancing Fee (And Why You Shouldn’t Let It Stop You) appeared first on Mortgage Goat California.

What is refinancing? 

Let’s back up to review what refinancing is all about. “Refinancing” refers to the process of replacing an old mortgage with a new one. This is usually a smart move financially because it allows homeowners to take advantage of a current interest rate that is lower than the rate they agreed to when they signed up for the original mortgage agreement. 

But you’ll need to take your credit history into account when weighing all the options. Borrowers with very strong credit scores who have an original mortgage with a “variable” loan rate (subject to the fluctuations of the market) may be able to convert their loan to a fixed rate, which means less guesswork and usually less money. Borrowers with lower credit scores or accumulated debt will need to strategize when refinancing to make sure the new rate is better than the original. 

People choose to refinance their homes for many reasons: to reduce the amount they owe each month for a mortgage payment, to lower the overall interest rate of the loan, to take cash “out of” the home to help cover other large purchases, or simply to switch mortgage companies. Most people choose to refinance when they have “equity” on their home, which is the difference between the worth of the home and the amount that is owed through the home loan.  

How do I get started? 

If you suspect refinancing might benefit you, you first need to assess your current mortgage rate in order to determine the “Combined Loan to Value” (CLTV) ratio. This ratio is an indicator of whether you have “equity” on your home or not by comparing your mortgage loan balance to your home’s value. It takes into account all credit lines that you may have used to pay for your home. The percentage value is calculated by taking your current mortgage balance plus your potential home equity loan amount, then dividing that number by your home value. A lower number is better since that indicates a higher home value (denominator). A low CLTV percentage means you are in a good position to refinance your home.  

When is the best time to refinance? 

Deciding when to refinance can be tricky, depending on what’s happening with the market trends. While you should never refinance without considering all the factors at play, below are a few common reasons people choose to go through with refinancing. 

1. You have an adjustable-rate mortgage 

If you have an adjustable-rate mortgage (ARM), check when it is due to “reset.” These types of loans periodically can be switched to either a fixed mortgage or a different ARM, and usually, either option will save you money since it means that your rate would be guaranteed for a longer period of time (irrespective of what the market is doing). If you have an ARM and the reset period is coming up, do some research or consult a professional to determine whether refinancing will save you money long-term.  

2. You have a higher income  

Let’s say you were in an entry-level job when you first took out your mortgage, but after a couple of promotions, you are in a much better financial position. This ultimately means that your debt-to-income (DTI) ratio, which can increase your credit score (see point #3!). Having an income boost and a bump in your credit score almost always puts you at an advantage when it comes to refinancing. 

3. Your credit has improved  

If you were not able to get a competitive mortgage rate due to a low credit score, but your credit has since improved, consider refinancing! You likely qualify for much lower rates with a higher score. This sounds like an obvious one, but you’ll still want to weigh all the options before refinancing (do some research about market trends, etc.) since the credit score is just one factor in the equation. 

4. You have other loans 

Most people with a mortgage have also borrowed money elsewhere—whether it is via credit cards or student debt. The interest rates for these types of loans are usually much higher than home loans. If this is the case, and you are paying a significant amount of interest each month to cover the other loans, you can “consolidate” your loans so that you’re paying the same interest rates for all loans across the board. This can be done through the process of refinancing. 

5. You live in a desirable location 

When it comes to real estate, it all comes down to the home worth. That, in turn, depends on where you live. If you live in a location like San Diego where property values are steadily increasing, refinancing will likely work out in your favor. 

Take advantage of dropping mortgage rates by digitally connecting with a mortgage broker to learn about your refinancing options. 

The post The Ultimate Guide to Refinancing appeared first on Mortgage Goat California.

With a global pandemic in play, practically every industry is preparing for a “new normal” and navigating new guidelines, lifestyles, and consumer priorities.

In this article, we’ll explore how COVID-19 has impacted the 2020 housing market and what you can expect.

Housing & Real Estate Market 2020: What’s Changed?

Let’s talk about the good news first: mortgage rates are at record lows!

But that also means that with more borrowers hoping to take advantage of those attractive rates, they’re also facing some of the toughest loan-approval standards in years. One report from the Mortgage Bankers Association showed that mortgage credit availability has decreased by more than 25% since the U.S. outbreak of the virus.

But why is this? Industry experts say that large lenders are more risk-averse because of the pandemic, as well as the ripple effects of borrowers delaying their monthly payments as allowed. Some lenders are even completely pausing the issuance of loans, which is why it’s more important than ever to go through a reputable mortgage broker so that you can shop more than one lender.

Additionally, there may be fewer homes on the market overall. While most real estate agents have continued to work, according to a recent survey from the National Association of Realtors (NAR), 57% of agents reported their clients delaying their home sale, and 10% reported clients are deciding not to buy or sell indefinitely.

That being said, there are still homes out there on the market, as a quick search on Redfin or other home-listing aggregates will show. One key difference you might come across, though, is the way you tour the home. Many homeowners are reluctant to host open houses right now because of physical distancing guidelines, so you may need to tour it virtually!

You also might experience the process slowing down a bit: home inspections, appraisals, and paperwork in general may take more time because of staffing shortages. And of course, get ready to work with your mortgage lender digitally, as is becoming the norm.

Housing & Real Estate Market 2020: What Hasn’t Changed?

Now we’ll move on to what hasn’t changed when it comes to the housing market this year.

Good Credit is Important

You probably already know the importance of good credit for securing a favorable mortgage rate. But now, these requirements are getting even higher and stricter among some lenders. Make sure to check your score so you know what you’re working with, and hold on any credit card applications or anything that could potentially hurt your score.

NerdWallet lists the ideal minimum credit score as 620, but mentions that anything higher than 740 will increase your chances of getting the lowest rates.

So if your score isn’t that high, are you out of luck? Not necessarily. Working with a mortgage broker with connections to multiple lenders will help, as they can find the best rate for you and your individual situation. It can also be tough to stay educated on ever-changing requirements on your own, which is why working with a professional is key.

You’ll Need a Solid Down Payment

Do you have a solid down payment saved up? Great! But be aware that some lenders are also raising their minimum down payments. 20% is the standard recommendation, but historically that hasn’t been enforced by lenders; in a recent news article, a Chase representative confirmed that they’re now requiring that along with a minimum credit score of 700. Compare that to the average 6%, as reported in a 2018 survey from the NAR—quite a jump.

Homeowners: Is Now the Time to Refinance?

Want a little extra cash left over in your wallet each month? With many people reevaluating your budgets right now, the allure of refinancing is getting stronger for current homeowners. Like we mentioned earlier in this article, mortgage rates are at an all-time low. So as long as your credit rating is still strong, it’s a great time to refinance your mortgage.

Here are four things you’ll want to keep in mind, though:

Commit to Shopping Around

When it comes to refinancing, it certainly pays to do some comparison shopping. With the economy and housing industry in flux, you’ll find that mortgage lenders are all over the map when it comes to their requirements and the rates they’re offering.

Again, this is where working with a mortgage broker will help. A broker will help you widen your network and uncover lenders that you wouldn’t normally find on your own, often with the best rates. A broker will also help you understand your individual situation and needs.

Calculate Your Savings

Before you jump into the refi process, it’s time to whip out your trusty calculator! A refinance can be tempting when rates are low, but you’ll need to think about your unique situation to make sure it makes sense for you. This includes details like how far into your loan you are, your outstanding loan balance, your current interest rate, the new rate, and what you can expect for closing and administrative expenses. In some cases you may need to get another appraisal on your home as well, which can run you about $500.

Determine Your Break-Even Point

Simply put: your break-even point is when you’ve saved enough in interest to justify any closing costs you’ve paid. Average closing costs for a mortgage refinance are around 2 to 5 percent, so find that number first. Then, determine how long you’d need to pay on the new loan to recoup that amount. If the math makes sense, then go for it! If not, then you may want to rethink it.

Compare the Terms

Of course, you’ll also want to consider all the terms of the new loan. For example, you might be offered a shorter or a longer mortgage term, so you’ll want to run the numbers on the different scenarios to see if it makes sense. There are pros and cons, of course—maybe it’s more important to you to have more cash at the end of the month left in your budget, and you don’t mind a long-term hit to your lifetime savings. This all depends on where you’re at in life and within your current loan, so it’s a personal decision.

Shop with Mortgage Goat

With Mortgage Goat, there are now more options than ever when it comes to buying or refinancing a home. At a time when the economy is ever-changing, alternative mortgage lenders are changing the industry and will only continue to do so.

Ready to make some moves? We’re here to help. Connect with our team of experienced mortgage brokers to learn more!

The post The New Normal for Home Buyers: What You Can Expect From the Rest of 2020 appeared first on Mortgage Goat California.

In fact, these falling interest rates have led to an influx of refinancing applications across the country, and many lenders are still struggling to keep up with the demand. The good news is, the marketplace is expected to level out, and some experts even say the rates will continue decreasing.

So if you’re considering refinancing but haven’t pulled the trigger, it’s a good time to think about your options.

First up on your to-do list: figure out which type of refinancing is right for you. In this article, we’ll focus on cash-out refinancing, when it makes sense, and how you can use it to your advantage.

What is a Cash-Out Refinance?

Simply put, a cash-out refinance is when you take a loan out on your current property at a higher amount than you originally paid, and you receive the excess as a cash payment. That money is then yours to keep and use, although sometimes they come with rules for how you can use the funds (known as limited cash-out refinancing, in this scenario).

This is an alluring option for homeowners who want some extra cash for things like renovations and improvements; you also don’t have to pay taxes on any money you earn in the transaction, since it doesn’t count as income.

However, there are some important things to keep in mind. First, you can expect to pay closing costs of around 2% to 5% of your new loan amount. Second, cash-out refinance rates are typically higher than a normal refinance, since the lender takes on a bit more risk. Third, your new loan may have different terms than your original loan, so you’ll want to double check all of the fine print before sealing the deal.

Ultimately, it’s smart to run the numbers and factor in all of the costs before deciding if cashing out your mortgage is right for you.

How Much Can I Get, and When Will I Get It?

As a general rule, the maximum amount you can withdraw is 80% of your loan-to-value ratio (LTV). As an example, let’s say your home is worth $300,000 and you still owe $100,000 on the mortgage. Ensuring you keep 20% equity in your home after the transaction, this means you could get up to $140,000.

Once your cash-out refinance request is submitted, it typically takes from 30 to 45 days to close. This is usually faster than a home equity loan or home equity line of credit (HELOC), so it’s a good option if you need the money fast.

When a Cash-Out Refinance Makes Sense

If you have at least 30% equity in your home, a good credit score (minimum of 620, ideally—but check with your lender on their requirements), and a good plan for how you’ll use the extra money, you’re on the right track.

While securing a lower interest rate is often a primary reason for refinancing, a cash-out refi has the added bonus of getting some cash in hand. The most common ways that people use this money is spending it on home improvement projects, consolidating or paying off high-interest debt, or paying for higher education.

But another lesser-known strategy is to use the money to buy an investment property or use as a down payment on another home that you plan on renting out, which we’ll dive further into in the next section.

Using Your Cash-Out Refi to Purchase an Investment Property

As we mentioned earlier, mortgage rates are at an all-time low right now. Why not take advantage of the market and finally purchase that investment property? Taking a cash-out refinance to buy an investment or rental home is one of the best ways to put your hard-earned equity to good use.

The financial principles are simple. By making smart investments in real estate, you can make money in two ways. First, real estate will always appreciate when you look at it long-term. Second, by renting it out, you can generate a monthly income.

One caveat to keep in mind: primary mortgage insurance (PMI) doesn’t apply to investment properties, so you’ll need a down payment of at least 20% of the home’s purchase price. So, make sure the numbers add up before you take the leap.

How Much Can I Earn From a Rental Property?

The profit you can make from monthly rent payments depends on the area you’re in, how good of a deal you get on the home, and how you manage your expenses month-to-month.

That being said, maintaining rental properties are great investments because they can often become passive income when everything lines up perfectly—an up-and-coming neighborhood can command higher rent each year, and if the home doesn’t need a ton of maintenance, you might not have to do much work at all throughout the year. Simply sit back, collect the rent checks, and enjoy your new source of income!

How Much Can I Earn From a Flip?

Another common strategy is to use the money from your cash-out refinance to cover the down payment and improvement costs on a house you intend to flip— known as a “fix and flip.” Similar to the rental property option, you’ll need to run the numbers to make sure the costs and risks will be worth it. This can be a risky strategy if you’re not familiar with costs and timelines for improving a property, and you’re also at the whim of the market when you are looking to sell.

Let Mortgage Goat Guide You

If you have the equity and a great plan in place, it’s the perfect time to take advantage of a cash-out refinance. And here at Mortgage Goat, we’re here to help you along the way. We work with over 100 lenders to secure you the best rate out there. All you have to do is take a few minutes to fill out our simple, 100% online application.

Ready to learn more? Contact us to start your pre-approval instantly.

The post Should You Do a Cash-Out Refinance to Purchase an Investment Property? appeared first on Mortgage Goat California.