Refinance Guide

The Ultimate Refinance Guide and Notes

Please share if others might be interested.

A 1% rate decrease on a $350k loan will save you upwards of $80k on interest over the 30 years of a loan.

You can see how much you’d save on interest over the life of the loan here: https://www.nerdwallet.com/mortgages/calculators/refinance-calculator

First, when you refinance, just like when you purchased, you don’t have a mortgage payment in the month  you close or the next month after.   We always try to structure these to close at the beginning of the month to save you two months of mortgage payments.

There are a few times when it’s beneficial to refinance: 

• Market is improving and rates are dropping

• FICO is getting better

• If your FHA Loan funded before March 20th, 2023 will have higher mortgage insurance than on or after March March 20th, 2023.   A refi on a loan started before March 20th, 2023, has an opportunity to save on their mortgage insurance.

• Home Value is increasing, giving us a better loan to value (maybe you can drop the mortgage insurance)

• You hit a rough patch and need to save the two months of payments (and possibly draw cash out…which we have a few vehicles for this)

Landmarks to watch for:

• 20% Equity in Property: Mortgage insurance drops off (this goes off the most recent appraisal that the lender has received from a mortgage application)

There are two ways to refinance: 

• Full Doc

• No Doc: Streamline or IRRRLs

Full Doc will look and feel like when you purchased the home.  Income docs, taxes, etc. need to be collected.   You need an appraisal and hard pull just like before.  This is how you do it with any Conventional Loan, FHA/VA Loan if you have a 2nd loan (HELOC for example), or a non conforming loan (think DSCR, Bank Statement, etc)..

Generally, with Full Doc, you can either:

• Roll in the closing costs, (mostly title fees & taxes, but smaller than purchase) and then save by not having to make a monthly payment for 2 months and pocketing the current loan’s escrow balance refund

-OR-

• You can use the funds you will save from the 2 months off and/or current loan’s escrow balance refund to cover the closing costs and simply move to a lower monthly payment and rate.

If there isn’t space for a refi because there isn’t enough equity, you can make a 2nd payment to principal each month to get there.   If you have a 2nd loan, and want to go the No Doc route, then you need to pay it off.   If you can’t do that, start making 2nd payments to the 2nd loan each month to work it off slowly.

No Doc is different.  With FHA (Streamline) and VA loans (IRRRLs)  that don’t have a 2nd loan on the property, we can qualify you with no income docs, no appraisal, and no hard pull (just a soft pull to confirm where your score is).   These close quickly as there isn’t much to it.  With FHA Streamlines, you can’t roll in the closing costs, so you use the funds you will save from the 2 months off and/or current loan’s escrow balance refund to cover the closing costs and simply move to a lower monthly payment and rate (you have the option to roll in closing costs with VA IRRRLs).  We just need .5% rate improvement to be able to do this.  Then, you can do it as many times as it’s beneficial after you made 6 mortgage payments on the new loan.

Further, if you can qualify for it, the move to a 15 year mortgage from a 30 year mortgage will save a ton of money on interest over the 30 years of the loan.  For example, there is usually over $150k in savings on interest on a $350k mortgage with this move.