If you are a retiree with equity in your property, then you have more options than you may think for financial leverage, liquidity, downsizing, and selling. Here are some of your mortgage refinance options and tips to make sure that you get the most out of your finances, equity, and property.
1. Do I have at least five percent of the equity in my home?
In order to move forward in the application process, you will need between five and ten percent equity in your real property. You will eventually need an official market valuation of the property, and this will show you exactly what that percentage is worth. You may need this money for the closing costs that will be generated by the new process, and you should also have this extra equity to ensure that you do not go underwater from the new financial activity.
2. Did I keep my house long enough to cover the fixed closing costs?
In order to make a property refinance worth your time, you need to hold a house for long enough for the money that you save in monthly payments to pay for the closing costs.
3. Am I talking to a banker whom I already trust?
Although you should meet with many lending institutions, your main financial connection should be a banker that you trust. Even if you do not do business with that particular bank because you get a better deal, you will gain valuable information from the association. You can also use the valuation and the numbers that you get from that bank as a benchmark for the other offers.
4. Have I checked my credit?
In order to get the best deal on your refinance, you must check your credit first. You need to check it well before you go into the financing office of any bank, because bankers can only deal with the numbers that you give them. If there is a mistake on your credit that is not your fault, this needs to be cleared up before anyone else sees it but you. The three major credit rating agencies are far from perfect, and they are prone to mess up your credit because of someone else with a similar name or Social Security number. Do not let this affect your refinancing effort to the tune of tens of thousands of dollars.
5. Do I have the other information that my lender needs?
In order to facilitate the refinancing process, you should also get all of the other information that you need. If you are retiring, then you will not have the pay stubs that are usually required for a process like this. You can substitute by showing your banker your other forms of consistent income. Perhaps you are receiving Social Security, or perhaps you have a disability check coming in. Maybe you were smart enough to invest in some annuities that will begin to pay off after you retire. No matter what your income streams may be, bring in verification for them in order to grease the wheels of commerce.
Make sure that you bring in at least two years of tax forms as well as all of your banking statements. Your loan officer will need to meet deadlines that are set by the lender, so have all of this information ready in a timely manner. If you do not, you may have to completely begin the process over from the beginning, losing any interest rate that you may have been promised to lock in.
6. Do I have extra cash to bring to the closing?
If you have extra cash to bring to the closing, you will be at a distinct advantage, especially if your property is appraised for less of a value than you expect. If you can substantially reduce the loan balance to at least 80 percent to the value of your home, you will avoid many of the other fees that occur when a lender takes on an outsized portion of the risk. One such charge is private mortgage insurance (PMI), a charge that can add literally tens of thousands of dollars to your overall payout without adding to your equity at all.
7. What is the market interest rate?
If you are trying to refinance during a retirement, you should have more time to wait for an advantageous interest rate to lock in. If you do not have this time, you may need to increase the amount of banks that are competing for your business. However, there is nothing wrong with renting for a while if your financial advisor thinks that you will be able to lock in a better interest rate by waiting a few months or years.
8. Have I shopped around for the best deal or not?
Finally, do not take any lender at their word. You should shop around for the best deal and be unafraid to show lenders the fact that you are in demand. There is nothing wrong with playing lenders off of each other, as very few of them will offer you the best deal that they possibly have up front.
If you follow the tips above, you may be able to substantially reduce your payment in order to make your retirement more comfortable. Keep in mind that there is a great deal of work to be done before you ever walk into the office of your banker.
2 Point Highlight
If you can substantially reduce the loan balance to at least 80 percent to the value of your home, you will avoid many of the other fees that occur when a lender takes on an outsized portion of the risk.
There is nothing wrong with playing lenders off of each other, as very few of them will offer you the best deal that they possibly have up front.
