A couple is looking to refinance their home. They should recognize they may pay more interest later to lower their monthly payment now.
Q: I need some advice on my current housing situation. I am a married woman that bought my house almost 4 years ago. Two years ago, I had a baby and my husband and I decided that I would stay home with her so I resigned from my job. Since then, finances have been very tight on just my husband’s income. The house is only in my name and we would like to keep it that way, so his credit is nice and clean for a new home if we decide to rent or sell our current home for something a little less expensive.
I have looked into several ways to get us out of our current home. We are current on all of our bills, including the mortgage so I looked into a streamline refinance. This seemed to be a great thing for us, so I called a few brokers and lenders just to see what they were offering and they all said they could help me get our interest down from 5.25 to 3.25 in as quick as a few weeks and for no money saving us about $235 a month. I’ve received conflicting information as to whether my lender will need to do an income verification, employment verification, home appraisal and require fees for the refinance. Can you give me more information?
A: An employee verification is when a mortgage lender calls your employer to verify that you still work there and to verify your salary information. Obviously, you no longer work outside of the home, and although we know that being a mom is a pretty tough job, it doesn’t count as a job that will help you qualify for mortgage financing.
Since you no longer work, and are the only person on title to the property, it may be impossible for you to refinance this property. You would have to get a job, one that will give you enough income to qualify for a mortgage. You would have to work at this job for a while, to show that you have staying power. Lenders usually want to see an employment history of two years.
But you are getting accurate information about job appraisals. Mortgage lenders will refinance your loan in some instances without a home appraisal if you are able to refinance your home and save $235 per month, you’d be saving about what the typical homeowner is saving these days in refinancing. However, you have to have an understanding of what you are being offered. If the interest rate you are offered is 3.25 percent fixed for 5 years, you need to know that your rate might rise at that time and that you have not locked in your low interest rate for the for the life of the loan.
Also, if you’re 5 years into your mortgage, and are doing another 30-year loan, you’re going to pay more interest overall, even though you’re saving money each month. That’s because you’ll wind up paying interest on a full additional five 5 years. However, in your case, if you’re short on funds today, lowering your monthly payment is a valid reason to refinance.
If you’ve read our columns in the past, you might have seen that the government has tried to encourage lenders to refinance borrowers that are underwater on their mortgages. Underwater borrowers owe more on their home than their home is worth. Traditionally these borrowers would not have enough equity in their home to refinance. However, under new loan mortgage program guidelines, lenders are able to refinance borrowers without considering the value of the home.
Furthermore, certain lenders may own the mortgages they gave in the past and have greater flexibility in refinancing their borrowers, even to refinance these borrowers without checking their credit history, employment, and value of the home. But these types of lenders are rather scarce these days.
You are on the right path in trying to get more information about refinancing your home. Find a couple of reputable mortgage lenders (national and local) and at least one mortgage broker and one credit union (if you belong to one) and talk to each of them about your circumstances and see if any of them can work with you to refinance your home.
It would not surprise us to find that the lenders would be willing to refinance the home but only if you and your husband are on the title to the home and if they can then review your husband’s credit and employment history in conjunction with the refinancing of the home.
If you decide to transfer title to both of your names, you may find the process to be quite simple. In some states, you will sign a quitclaim deed conveying title from your name to your husband and to yourself as joint tenants with rights of survivorship or other manner that may fit your needs. Before you go down that path, you will want to make sure that the recording of the deed-conveying title won’t cause your real estate taxes to go up, cause you to pay a high cost in transferring title or trigger any issues with any homeowners’ associations.
In many states an attorney can assist you in preparing the documents to transfer title, but we have also seen title agents prepare those same documents for their customers. In either case, make sure you understand the document you are signing and what it will do or won’t do for you in the future.
For example, don’t sign a deed conveying title to both of you as tenants in common – where ownership is shared and where the death of one person does not transfer title automatically to the other. In this circumstance, you’d want title to be conveyed to both of you as joint tenants with rights of survivorship. In some places, you might find the term called tenants by the entirety – almost the same as joint tenancy but protects married couples from certain creditor claims.