Both fixed rate home equity loans and adjustable rate home equity lines of credit can be obtained, based on your credit score, total loan to value ratio, and relative to currently existing market trends.
By consulting a number of lenders and obtaining quotes, you can shop for the most appropriate second loan for your needs. After you fill out the necessary paper work to apply for the loan, an appraisal will be conducted to ascertain the present value of your home. At the closing for the second loan, you must pay closing costs, just as you did when obtaining your first loan.
After you acquire your second mortgage loan, you can then refinance the primary loan. At this time you should request that your lender make the second loan subordinate to the refinance loan. Unless you do so, the second loan will become the primary loan, while the refinance mortgage loan becomes secondary.
Since, if you default on the second mortgage, you could lose your property due to foreclosure, it is imperative that you undertake a complete budget analysis before acquiring the second loan.
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Chapter 5 – Benefits of Refinance Mortgages
If your monthly payments and other expenses are steadily increasing, or if you have mounting debt balances which you would like to clear as soon as possible, you should consider the benefits of refinancing your mortgage. The mortgage refinancing process actually replaces your present mortgage loan with a new loan having a better interest rate and more manageable terms and conditions. Your home will now serve as security for both loans. At the same time the second loan pays down the existing primary mortgage, the remaining funds can be used to best benefit you and the projects you choose to pursue.
The following are five legitimate reasons for choosing a mortgage refinance:
You wish to save more on a regular basis. With a mortgage refinance, your monthly payments will decrease, provided you are successful in getting a lower rate of interest.
Your desire is to pay down your mortgage swiftly. By reducing your loan term, you can shorten the duration of your mortgage. Although your monthly payments will subsequently increase, you will save money in interest payments. And, what’s more, you will eliminate your debt more quickly.
You are in need of cash flow to pay credit card balances. Having extensive equity in your home will enable you to refinance and borrow beyond the current loan balance. Then, with the extra cash resulting, you can eliminate high interest debts. Additionally, in some cases a refinance mortgage loan may be a tax deduction.
You see the advantage in consolidating two loans into a single loan. With sufficient equity (based on high appreciation), you can consolidate two loans into one. With any luck, monthly payments on the second mortgage may be lower than the combined payments on the two mortgage loans.
You favor converting an Adjustable Rate Mortgage (ARM) into a Fixed Rate Mortgage (FRM). With an FRM, the lender is unable to increase your monthly interest payments throughout the duration of the loan, so your payment amounts due each month will not vary.
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Chapter 6 – Useful Resources for Disabled Citizens
FHA: Both the FHA (Fair Housing Act) and the ADA (Americans with Disabilities Act) offer protection to the disabled in all areas of housing. While the ADA safeguards the rights of people living with handicaps, the FHA offers protection specifically relative to home ownership. Numerous additional laws and regulations structured to protect the interests of those U.S. citizens and residents with disabilities can be found on the official HUD Web site: gov.
When contacting realtors, remember that the Fair Housing Act prohibits discrimination against disabled persons purchasing or bidding on homes. Under FHA, multifamily residences built after March 13, 1991 must satisfy specific standards of accessibility, such as:
Accessible entrance from an accessible street or road;
Doorways sufficiently wide to accommodate wheelchairs;
Easily reachable light switches, outlets and thermostats;
Bathroom reconstruction, if needed, for the disabled;
Accessible kitchen space and appliances.
The SSI: The Social Security and Supplemental Security Income disability programs are also a good place to turn for financial benefits. In general, Social Security has a comprehensive financial assistance program which includes the nation’s most extensive variety of applicants. As a source of additional money, SSI may provide the funding to stabilize your income so you may qualify for government backed mortgage loans. One benefit of applying for funding from SSI is that, provided you file your application within 60 days of your first contact date, if you are approved, your initial funding start date will coincide with the date of your initial agency contact.
The Section 8, Housing Choice Vouchers: This is a HUD Program which grants financial aid to moderate and low-income families with disabilities for the purpose of renting or buying a home. It gives special attention to first-time home purchasers needing assistance in meeting monthly mortgage payments.
Habitat for Humanity (HFH): This is a globally recognized organization having constructed homes worldwide for needy families and single people, as well as the disabled. As a Christian non-profit group, HFH builds and grants accessible homes with mortgages sponsored by means of donations, and through private, federal and state sources. Home owners who receive aid from HFH, in turn help build their own Habitat homes, as well as future Habitat houses for other applicants. HFH feels this involvement gives all participants a strong sense of self-worth, independence and community support.
The National Opportunities for Affordable Housing Foundation (N.O.A.H.): is a non-profit agency which helps make both buyers and sellers knowledgeable concerning good real estate practices and decisions. It is a reliable source to consult on affordable housing and aid for down payments and closing costs. With special concerns for minorities and people with disabilities, the N.O.A.H. Foundation helps first and second-time home buyers to locate mortgage assistance programs at both the state and local government levels, such as: Down Payment and Closing Cost Assistance Programs; Grant Funds Programs; and Below Market Interest Rate Programs.
Homes for Our Troops: This is a non-profit organization providing individually adapted homes for severely injured and disabled U.S. veterans of military forces service, at no cost. It is funded by donations from a wide range of corporate, building industry and community organizational donors.
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Chapter 7 – Final Tips & Warnings
When Should You Refinance Your Mortgage?
You can consider refinancing your mortgage after you build up 10% or more equity in your home. (The requirement for refinancing Fannie Mae mortgages is 5% equity.) In some instances, you may be allowed to refinance with even less than 5% equity, but a payment may be required before doing so to even out the difference in equity.
When in doubt, follow the 2% Rule. According to the 2% Rule, a good time to refinance your mortgage is when the refinance interest rate is 2% lower than the interest rate of your present mortgage loan. Your interest savings will assist you in regaining the cost of the new loan. Although it is tempting to go for no-cost or low-cost refinance mortgages, such loans often come with high interest rates and may be difficult to obtain during a down-swing in the credit market. Prior to applying for mortgage refinancing, be sure to comparison shop among lenders for the best possible refinancing interest rates.
Avoid making late payments. The majority of lenders request that you have no late monthly payments during the 12 months preceding any application for refinancing your mortgage loan.
Review your credit report and remove any inaccuracies or negative information before applying for refinancing. Failure to do this may prevent you from obtaining a refinancing loan at a competitive rate.
When Should You Refrain from Refinancing Your Loan?
If the value of your property has decreased, it may not be a good time to refinance your mortgage loan. If you should refinance up to 80% of your home’s appraisal value while your property value is down, the amount of your first mortgage loan may be greater than the amount you now borrow. In this case, you will not be able to pay down the initial mortgage with your newly acquired loan.
If you are in the last stages of paying off a 30-year fixed rate mortgage loan, refinancing will not be helpful. The amount of your equity loss will far exceed the remaining amount of your loan.
Refinancing is not a recommended option if the amount of your equity is substantially diminished due to a second mortgage or home equity loan. And remember, it is very unusual to locate a refinance loan equal to 100% of the original mortgage.
Refinancing is also not recommended if you have just a few years remaining on your present loan. Obtaining an additional loan at this point will only serve to increase your debt once again. And, whenever you are making a decision about refinancing a loan, you must determine whether it’s to your current advantage to choose a simple interest rate adjustment refinance option or a refinance plan that will provide you with extra available funds.
Click the link to listen to an audio version of this guide by using the embedded player below
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