Buying vs. Refinancing

By Guest Contributor Roy Jones, Manager, Coldwell Banker Residential Real Estate,
Boca Resort office

Mortgage interest rates continue to fall, according to Freddie Mac's Primary Mortgage Market Survey. Interest rates are below five percent, and with the recent extension of the home buyer tax credits it gives buyers a unique opportunity to purchase a home with interest rates at nearly 50 year lows. This may also be a great time to lock in a lower interest rate and refinance your loan's existing balance. Here are some points to consider when thinking about refinancing:

1. Will you qualify for a refinance? Before you put in any time and energy into working out the details of your refinance, try to assess your property's current value. Contact a local real estate agent to discuss what homes in your neighborhood are selling for, not what they're listed for.

2. How much equity do you have in your home? Today, conventional lenders won't do a refinance unless you have at least 20 percent equity in your property and have verifiable income. FHA loans are available for loans with less than 20 percent down, and their guidelines differ somewhat from most Fannie Mae and Freddie Mac lenders, but these FHA loans are generally available for new purchases of homes and not for homeowners who want to refinance.

3. Can you qualify for "underwater" mortgage programs? If the value of your house is less than what you owe on the mortgage, then you are considered to be "under water." If your loan is owned or securitized by Fannie Mae or Freddie Mac, you still might be able to refinance your mortgage even if you are under water.

4. What are you trying to accomplish? Some homeowners want to lower their monthly payment; others want to shorten the loan term. Start by figuring out what your financial goals are for the refinance, and then prioritize them so you know which of your financial goals are most important.

5. Shop around. Although Fannie Mae, Freddie Mac and FHA are collectively responsible for nearly 90 percent of the loans being originated, refinance fees vary widely. Ask prospective lenders to list every fee so you understand what you'll be paying and what the interest rate will be.

Have you refinanced of purchased a home lately? What has been your experience with the lending process?