After you've stayed in a home for several years and faithfully made a mortgage payment each month, you may wonder if it is a good time to refinance your loan. If you proceed with this option, you'll want to start by checking how much equity you have built up in the property.
Refinancing has the potential to save you a good deal of money or make the loan more manageable. Ilona Bray, writing for the legal site Nolo, says you may be able to enjoy some long-term savings by bringing the interest rate to a lower level. You can also change the type of mortgage from an adjustable-rate loan to a fixed-rate one, or vice versa.
If you want to lower your monthly payments, you can refinance to extend the payment period. This gives you more time to pay off the outstanding amount on your loan, which will be diminished by the equity you've built up in the home. However, you'll end up paying more in interest over the length of the loan.
A lender will consider factors such as your debt-to-income ratio, credit score, and your home's value in negotiating a new loan. You may also have to pay some of the same costs you did to apply for the original home loan, such as title insurance and appraisal fees.
Having some equity in your home will increase your chances of getting approved for refinancing. Fraser Sherman, writing for SFGate, says you're more likely to be approved for refinancing if you have at least 20 percent equity in your home.
However, the equity requirements will also vary depending on the type of loan. Marcie Geffner, writing for the mortgage research site HSH, says you can refinance with as little as 5 percent equity if you have mortgage insurance. You might even be able to refinance with negative equity through the Home Affordable Refinance Program, although this program is set to expire at the end of 2016.
There are a couple of refinancing options available for loans offered through the Federal Housing Administration. Streamline finances are available for loans already insured by the FHA and allow a borrower to refinance even if they have negative equity. Geffner says that since all FHA loans require mortgage insurance, it may not make sense to refinance through the FHA if you have built up equity of 20 percent or more.
Streamline refinancing is also available through the Department of Veterans Affairs. If you use this option, you'll need to have an existing VA loan and refinance into a new VA loan.
In some cases, you may be able to get a cash-out refinance. Bray says this occurs when you take out a new loan for more than you owe on your current mortgage, giving you the difference in cash to use on home renovations or for other purposes. However, you likely won't be approved for a cash-out refinance unless you have a significant amount of equity in the home.
Your ability to get cash-out refinancing largely depends on the loan-to-value ratio, or how the outstanding balance compares to the home's value. Geffner says an 80 percent loan-to-value ratio—or 20 percent equity in the home—is usually needed for cash-out refinancing in conventional loans. She says a standard FHA refinance can cash out with an 85 percent loan-to-value ratio, but that cashing out is not an option for streamline refinancing.
You'll also need more equity if you include closing costs as part of your new loan. If you don't pay these costs up front, you'll need to take out a slightly larger loan or get a higher interest rate to pay for them.
Bray says if the closing costs are significant for the refinancing, you'll want to consider whether you will actually save money by taking this action. If you're lowering your interest rate, determine how long it will take these savings to offset the closing costs. If you don't think you'll stay in the home for that period of time, refinancing will cost more than it will save.
Before you get an appraisal, you can get an idea of how much equity you have in your home by determining how your home's value has changed. You can do so by checking property tax records, sales of comparable homes, and news reports on home sales and prices in your region.
If you have any questions, let me know.
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me sales across Connecticut surged in June — registering double-digit gains — but the flurry of springtime buying and selling wasn't enough to lift prices, a new report Tuesday shows.
Home sales of single-family houses statewide soared by nearly 20 percent, to 3,368, from 2,799 for the same month a year ago, according to a report from The Warren Group, which tracks real estate trends in New England.
It was the fifth straight month of year-over-year gains in sales and the most robust month this year, Warren said. But the median sale price — in which half the sales are above, half below — fell 4.4 percent, to $264,000 from $277,000 a year earlier.
Through the first six months of the year, sales climbed by 12 percent, to 12,254, from 10,993 for the same period a year ago. The median price slid 2 percent, to $245,000, compared with $250,000, Warren said.
The median price has fallen in every month this year, except January when it was flat and March when it gained 3 percent, according to Warren Group.
"The Connecticut housing market is relatively healthy, but it's not going gangbusters," said Donald L. Klepper-Smith, an economist at DataCore Partners Inc. in New Haven.
Klepper-Smith said sales are being driven by homeowners choosing to sell their homes for less, putting downward pressure on the median sale price.
Connecticut's soft labor market, compared with other states, the aging of the state's population and rising state and local taxes are having a longer-term affect on the housing market, Klepper-Smith said.
Klepper-Smith said he doesn't foresee any big gains in prices in the next year or so, but he also doesn't see any big dip downward, either.
"Prices are going to muddle along," Klepper-Smith said. "There is nothing to suggest that we are returning to the peak of 2005 anytime soon."
Connecticut is now in the fourth year of a housing recovery. ( Whoo Hoo!!!)
Timothy J. Warren Jr., Warren Group's chief executive, projects that sales will continue to rise through this year and into next. But significant increases in prices may not come until 2016, Warren said.
Sales of single-family houses in Connecticut logged double-digit, year-over-year increases in 2012 and 2013, with prices registering a gain in 2013. Sales were disappointingly flat in 2014 and prices again lost ground, compared with the previous year — a slow spring market and tepid job growth were largely to blame.
Real estate professionals — and home sellers — had pinned high hopes on this year's spring market, traditionally the strongest of the year.
This year's spring housing market was "much stronger spring than last year, and hopefully it continues through the next season," Warren Group said.
Single-family house sales in June rose in each of the state's counties, with the strongest gain in Tolland County. Median prices declined in all but Hartford and Windham counties.
In Hartford County, sales rose 19 percent, to 869, in June from 730 for the same month a year ago. The median price creeped up just under 1 percent, to $232,500, from $231,000 a year ago.