What does it mean to refinance?

Just as the word implies, refinancing is simply the act of financing something again. Your needs as a homeowner today may be different from your needs when you originally obtained a mortgage. Borrowers in this position often refinance in order to obtain a new loans with more favorable conditions.

Refinances are common whether current mortgage rates are rising or falling; and you can get one from any bank you choose. You’re not limited to working with your current mortgage lender.

Some of the reasons homeowners refinance include a desire to get a lower mortgage rate, to pay their home off more quickly, or to use their home equity for paying credit cards or funding home improvement.

Refinances typically close more quickly than a purchase mortgage loan and can require far less paperwork.

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How many times can I refinance?

Legally speaking, there are no limits to the number of times you can refinance your home loan. However, that does not mean it will always be a good idea to do so. One thing you will want to keep an eye out for is prepayment penalties. Some mortgages include penalties for early payoff that could offset the gains you make by refinancing. Anytime you consider refinancing to save money there are really three variables you need to account for: Interest, costs, and time. You will need to meet with your lender and determine how much you can reduce your interest rate by, and what the closing costs will be to do so. From there you can see how many months it will take for your monthly savings to pay for the closing costs. If you plan on staying in the home longer than that time then it is probably smart to refinance to the lower interest rate.

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How can I borrow against my equity?

There are a few different ways to take out an additional loan or second mortgage on your home. Before we get into some of the more popular options, it is important to remember that this money come with interest just like a credit card or any other type of loan. This interest rate may be lower, but you are also using your home as collateral which means failure to repay may result in the loss of your home. That does not mean these loans can’t be useful for an educated borrower, so let’s see what the options are:

  • Home equity loan: A second mortgage for a set amount, at a set interest rate, which is to be repaid over a set period of time.
  • Home equity line of credit (HELOC): A second mortgage with a fluctuating balance similar to a credit card. The interest rate on HELOC’s varies according to the market rate.
  • Cash-out refinance: A refi on your current mortgage that exceeds the current amount you owe. The borrower receives the difference in cash up front to be repaid as part of the refinanced mortgage.

As for how much you can borrow that depends on your lender, and the amount of equity you have in the house, and your credit score. You will need to discuss terms with your lender, but most will approve you to borrow 80-90% of your equity.

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How difficult is it to refinance?

When you refinance your mortgage you are establishing a brand-new loan with brand-new terms. This generally means you will go through the same mortgage approval process as you initially did when you secured your first mortgage.

Your credit worthiness will once more be evaluated based on:

  • Credit Score and Payment History
  • Income and Employment History
  • Retirement Assets and Cash Reserves

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In addition, the home being refinanced will be subject to a home appraisal in order to establish its current market value.

Despite these similarities, borrowers can expect to provide less documentation for a refinance mortgage than they did when they initially purchased the home.

You will still be asked to provide proof of income, proof of assets, and proof of citizenship, but you will not be asked to provide information related to the original transfer of the home.

Refinance mortgages are often ready to close in 30 days or less.

USRES Lending is your premier source for everything you need to know about refinancing your mortgage in Southern California. Our parent company has been in the industry for over two decades, and has a wealth of experts who specialize in the Southern California market. Feel free to contact us directly at info@usreslending.com if you have any additional questions. We’re always here to help.

If you’re ready to start the Southern California home buying process you can also request a quote or apply for a loan directly through our website on the “Get In Touch” tab.

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