Mortgage refinancing can help you change your loan terms or put home equity to work. Refinancing your mortgage is replacing your current mortgage with a new one. The new loan pays off the old mortgage and you’ll start making payments on the new mortgage. You can refinance your mortgage for all sorts of reasons including lowering their monthly payment, getting a better interest rate, taking cash out of their home, shortening their loan term, or a combination of the above. Borrowers with perfect credit For borrowers with a perfect credit history, refinancing can be a good way to convert a variable loan rate to a fixed, and obtain a lower interest rate. Borrowers with less than perfect, or even bad credit, or too much debt, refinancing can be risky. There are three Types Of Refinance Mortgages Refinance mortgages come in three varieties — rate-and-term, cash-out, and cash-in. The refinance type that’s best for you will depend on your individual circumstance. Rates vary between the three types. Rate-And-Term Refinance In a rate-and-term refinance, the only terms of the new loan which differ from the original one are either the mortgage rate, the loan term, or both. Loan term is the length of the mortgage. For example, in a rate-and-term refinance, a homeowner may refinance from a 30-year fixed rate mortgage into a 15-year fixed rate mortgage; or, may refinance from a 30-year fixed rate mortgage at 6 percent mortgage rate to a new, 30- year mortgage rate at 4 percent. With a rate-and-term refinance, a refinancing homeowner may walk away from closing with some cash, but not more than $2,000 in cash. A “No cash out” refinance mortgages allow for closing costs to be added to the loan balance, so that the homeowner doesn’t have to pay costs out- of-pocket. Cash-Out Refinance In a cash-out refinance, the refinance mortgage may optionally feature a lower mortgage rate than the original home loan; or shorter loan term, such as moving from a 30-year mortgage to a 15-year mortgage. However, the defining characteristic of a cash-out mortgage is an increase in the amount that’s borrowed. With a cash-out refinance, the loan balance of the new mortgage exceeds than the original mortgage balance by five percent or more. Because the homeowners only owes the original amount to the bank, the “extra” amount is paid as cash at closing, or, in the case of a debt consolidation refinance, directed to creditors such as credit card companies and student loan administrators. Cash-out mortgages can also be used to consolidate first and second mortgages when the second mortgage was not taken at the time of purchase. Cash-out mortgages represent more risk to a bank than a rate-and-term refinance mortgage and, as such, carry more strict approval standards. For example, a cash-out refinance may be limited to a lower loan size as compared to a rate-and-term refinance; or, may require higher credit scores at the time of application. Most mortgage lenders will limit the amount of “cash out” in a cash-out refinance mortgage to $250,000. Cash-In Refinance Cash-in refinance mortgages are the opposite of the cash-out refinance. With a cash-in refinance, a refinancing homeowner brings cash to closing in order to pay down the loan balance and the amount owed to the bank. The cash-in mortgage refinance may result in a lower mortgage rate, a shorter loan term, or both. There are several reasons why homeowners opt for cash-in refinance mortgages. The most common reason to do a cash-in refinance to get access to lower mortgage rates which are only available at lower loan-to-values. Refinance mortgage rates are often lower at 75% LTV, for example, as compared to 80% LTV. Another common reason to cash-in refinance is to cancel mortgage insurance premium (MIP) payments. When you pay down your loan to 80% LTV or lower on a conventional loan, your mortgage insurance premiums are no longer due. Less Paper Work Required for Refinances When you do a mortgage refinance, you are establishing a brand-new loan with brand-new terms. Typically, this subjects a refinance applicant to the same mortgage approval process as with a purchase mortgage applicant. In other words, the refinance applicant is evaluated in three specific areas: 1. Credit Score and Payment History 2. Income and Employment History 3. Retirement Assets and Cash Reserves Furthermore, also like a purchase, the home being refinanced is subject to a home appraisal in order to affirm its current market value. Despite the similarities, though, borrowers can usually expect to provide less documentation for a refinance mortgage as compared to a purchase especially if you refinance with the same lender. You will still be asked to provide proof of income using W-2s and pay stubs; proof of assets via bank statements; and proof of citizenship or U.S. residency status. But, you will not be asked to provide information related to the original transfer of the home. We can close your refinance mortgage usually in 21 days Some Refinances like FHA,USDA and VA Don’t Require Verifications Refinance mortgages typically require the verification of a borrower’s income, assets, and credit. However, there are certain refinance programs for which verifications can be bypassed. These programs are called “streamlined” refinances. They’re called streamlined refinances because their underwriting requirements are grossly simplified and designed to be speedy. With a streamline refinance, mortgage lenders waive large parts of their “typical” refinance mortgage approval process. Often, home appraisals are waived, income verifications are waived, and credit scores verifications are waived. Different lenders may deploy different overlays for each of the streamlined programs, but the programs can be summarized as follows. The FHA Streamline Refinance The FHA Streamline Refinance program waives all verifications and refinance mortgage rates are as low as with a standard-verification FHA-backed loan and requires refinancing homeowners to save five percent or more on their mortgage payment; and, to show a history of on-time payments to their lender. Cash-out refinance mortgages are not allowed via the FHA Streamline Refinance program. The VA Streamline Refinance The VA Streamline Refinance is available to homeowners with an existing VA-backed mortgage. Officially known as the VA Interest Rate Reduction Refinancing Loan (IRRRL), the VA Streamline Refinance also waives income, asset, and credit score verifications. Refinancing VA homeowners are required to demonstrate that the refinance mortgage will result in monthly payment savings, except for homeowners changing to a shorter loan term, such as from a 30-year mortgage to a 15- year mortgage; or, from an ARM to a fixed-rate loan. Homeowners may not receive cash-out as part of a VA Streamline Refinance. USDA Streamline Refinance The USDA Streamline Refinance Program is available to homeowners with existing USDA home loans. USDA loans are loans for homeowners in rural or suburban areas which allow for up to 100% financing. The USDA Streamline Refinance Program does not verify income, assets or credit; and, homeowners using the program to refinance are limited to 30-year fixed rate mortgages and 15- year loans. ARMs are not allowed. Cash-out refinance mortgages are not allowed via the USDA Streamline Refinance.