Should You Refinance During COVID-19?

Interest rates are at historic lows today and have dropped from over 10% in the last 30 years into the 2-3% range! Sounds great, right? Yes and no. 

The mortgage industry is overwhelmed with customers looking to refinance their mortgages, which means that the process takes longer and is more difficult than during calm economic periods. There may be opportunity for massive savings! Realm has done extensive research and is here to help. Below we have laid out a couple of things to consider before beginning the process:

  1. Are you self employed?

Covid-19 has led to a spike in unemployment and reduced wages for many Americans. Lenders are being careful about who they approve for loans, and looking very closely at income, the source of income, and the stability of said income. 

If you are self employed and have 2 years of consistent income on your individual tax return, plus proof of consistency for the past few months (including the weeks while your application is being processed) you are in good shape!. If not, don’t worry, Realm can help you navigate this tricky environment by matching you to the lender that is best suited for your financial situation. 

  1. Is your credit score the best that it can be?

Most lenders want to see a credit score over 700. Negative remarks such as a missed credit card payment, stay on your credit report for 7 years! If your credit score if below 700, you can get it up in as little as 30 days using the following strategies:

a. Decrease your “utilization” by paying off debt. 

For example, if you have 3 credit cards with limits totalling $20,000 and currently have a $10,000 balance across those cards, your debt “utilization” is 50% – anything above 30% is a red-flag to lenders. If you can pay off $5000, that reduces your utilization to 25% and will drastically increase your score within 30 days because it shows lenders that you have the ability to make payments and manage your debts effectively. 

b. Decrease your “utilization” by increasing your available credit on existing accounts. 

Another way to decrease your utilization score is to ask your existing lenders (specifically, your credit card companies) if you are eligible for a larger credit line without a hard inquiry. Often, if you have had a credit card for more than one year, and made all your payments on time, the company will increase your limit without performing a hard inquiry. In turn, this gives you more open space, and decreases your utilization percentage. 

  1. Are you moving soon?

When you refinance your mortgage there are closing costs associated, even with the best lenders in the industry. Before committing to a refinance offer, you should compare the estimated closing costs with the amount of money you would save over the period before you sell your home for a move.

Additionally, if the savings are minimal after analyzing closing cost vs. savings, consider waiting until you make your new home purchase because lenders look at  the number of “Credit Inquiries” you have had in the past two years, and if you have too many, you will not be eligible for the best rate when you apply for your new mortgage. 

Are you in good shape? It is time to take action!

If your employment is secure, you plan to stay in your house for the next few years, and your credit is good, you may have the opportunity to save tens of thousands of dollars during the remainder of your mortgage. 

The average refinance rate being offered today is 2.88%. After closing costs and all associated fees, the average rate is 3.3%. If your existing rate is above that, Realm can help! 

The next step is to find the right lender and secure the lowest possible rate so that you can start saving! As we mentioned at the beginning, many lenders are overwhelmed with customers, but Realm works with top lenders in the industry, including Loan Depot, Quorum, and Mortgage Unlimited. We are here to help you manage the process and guide you through re-investing your new found savings! 

At Realm our mission is to help you maximize the return on your home investment. We analyze thousands of properties and provide data driven, actionable insights to help you increase your property value, earn rental income, lower your monthly mortgage payment and take cash-out to pay for other expenses. 

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Published by Realm

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