Wednesday, February 1, 2023

Why Does My Bank Want Me To Refinance

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Why Does The Bank Want To See My Living Trust

Reddit Q& A: Why Banks Want You To Refinance So Bad and Why They Won’t Admit It

Question: My lawyer recently prepared a revocable living trust for my wife and me. We followed his instructions and asked our bank to move our accounts into our trust. The bank manager said that first we would have to give the bank a copy of the trust itself. Is that right?

Answer: No it is not and you are absolutely correct in questioning this. It is just as if they asked you to see your will since your trust also says who gets your property when you die. Frankly, its none of their concern and I have called many bank managers over the years and told them just that.

For those of you who are saying, Whats this living trust he is talking about?, a little background. A revocable living trust is the most flexible estate planning tool aimed at an easy transfer of your property to your family at the time of your death. While a will must be approved by the Court when you die , which can cost up to 5% of your estate in attorneys fees alone, your living trust requires no Court approval and if done properly your family to completely avoid probate. This is the main reason why more and more people are choosing to utilize the living trust instead of just a will.

How does this work? Your lawyer prepares a document creating a new entity, your trust, over which, while you are alive and well, you as trustee have total control. Your trust can own as much of your property as you put into it. The more you put into it, the more effective it is as far as avoiding probate.

Lack Of Equity/ Ltv Restraints

  • It can be difficult to refinance if you lack home equity due to a low down payment and/or falling home prices
  • Lenders typically want your LTV to be below 100% to ensure youve got skin in the game
  • However, there are some loan programs that address high-LTV and underwater mortgages
  • Including streamline refinances that dont require a home appraisal

Perhaps the most typical reason for a denied refinance is a lack home equity, which translates to a loan-to-value ratio well above whats acceptable.

For example, a great number of homeowners took out interest-only home loans and option-arms during the housing boom because home prices were only going in one direction. Up.

But once things took a turn for the worse, many of those homeowners had little, no, or even negative equity as a result.

Even those who opted for traditional fixed-rate mortgages may have sapped their home equity by cash-out refinancing repeatedly.

Regardless of how, many of these homeowners found that they didnt qualify for a traditional refinance thanks to their inflated LTV.

Todays borrowers are more equity-rich thanks to rapidly rising home prices, but those who put little down can still face LTV issues.

And if you want cash out with your refinance, expect an even lower max LTV, such as 80% or lower if a multi-unit property.

Solution: There are several government-backed programs, as well as lender-based programs out there at the moment that address high LTVs, at least with regard to rate and term refis.

Learn More About Home Loans

We think it’s important for you to understand how we make money. It’s pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform . But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That’s why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don’t represent all financial products out there, but our goal is to show you as many great options as we can.

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Pay Off Credit Card Debt

Paying less interest on consumer debt, such as credit cards and personal loans, is also a good way to increase long-term savings. But when people think about refinancing to reduce interest on consumer debt, they often think about doing a cash-out refinance and using the cash to pay off their debt.

Is this actually one of the best reasons to refinance? Honestly, it can also be one of the worst. It really depends on you.

  • Will you reduce your home equity by cashing out, pay off your high-interest debt, then get back into consumer debt again? If your financial situation is unstable, you dont have a multi-month emergency fund or you dont have self-discipline, you might end up with more debt than you started with. Bad luck or bad behavior can mess up this strategy.
  • Alternatively, will you never get back into consumer debt again and enjoy the interest savings by paying off your past mistakes at the much lower rate you can get on a new mortgage instead of the high rate youre paying now?

If youre carrying a lot of debt, its possible that your credit score is too low or your debt-to-income ratio is too high to qualify for a refinanceor that you wont get the best mortgage rate.

Make sure to look at the big picture, too. When you refinance debt at a lower interest rate and repay it over 15 or 30 years, youre not necessarily going to come out ahead. Attacking your debt with the snowball or avalanche method can be cheaper and more effective.

Refinancing Without Being On The Loan

All about Refinancing
  • Title issues are another common roadblock to refinancing a mortgage
  • If a future borrower can document payment history for the loan
  • It can make it a lot easier to add this individual when you refinance
  • And that could lead to better terms on your home loan

If you and a spouse or family member are currently living together, but only one person is a borrower on the existing mortgage, it might be in your best interest to make the mortgage payments from a joint checking or savings account each month.

This could make it easier to refinance the same mortgage in the future, assuming you want to include the individual who isnt currently on the loan and/or title.

This need can come up if one borrower has significantly better credit than the other, and/or makes more money, etc.

There are myriad reasons why youd want just one borrower on the loan, and if you can document a history of both individuals making the payments, refinancing should be possible with much less hassle.

Simply put, banks and mortgage lenders often want verification that whoever is taking over the existing loan has been making mortgage payments for at least the prior 12 months.

This may also alleviate the need for title seasoning, so a borrower taking over the mortgage can simply be quit-claimed onto title at the last minute as well. Two birds, one stone.

It can amount to big savings via a lower mortgage rate if the current titleholder/mortgagor has a low credit score and the spouse has a great score.

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Shop The Best Refinance Rates

Now for a little legwork or more likely web work and phone calls. You want to shop for your best refinance rate and get a Loan Estimate from each lender. Each potential lender is required to issue the estimate within three days of receiving your basic information.

The Loan Estimate is a simple three-page document that details the loan terms, projected payments, estimated closing costs and other fees.

Compare the loan details from each lender and decide which one is best for you. This is a good time to work that mortgage refinance calculator.

Learn Why Banks Require A Phase I Esa

When it comes to purchasing or refinancing a piece of property, a lot of people end up having questions around the Phase I and Phase II ESA process. One of the most common things we hear is people wondering why their bank is requiring a Phase I, or in some cases, a Phase II ESA at a piece of property. So whether this wasn’t properly explained to you by a bank or lending institution, or you aren’t entirely sure what a Phase I ESA actually is, if you’re wondering why a bank might require a Phase I or Phase II ESA, we’ll try to answer that question as easily and transparently as possible. Just bear in mind we aren’t a bank, but this article mirrors conversations we’ve had with folks in the financial realm when it comes to Phase I work.

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When Its A Good Idea To Refinance Your Mortgage

Generally, if refinancing will save you money, help you build equity and pay off your mortgage faster, its a good decision.

Even borrowers who have fairly new mortgages might be able to benefit from refinancing. Say you were approved for your mortgage at the start of 2020. Although youre less than two years into your loan, the ability to now lower your interest rate by one-half to three-quarters of a percentage point can substantially lower your monthly payment and reduce the interest over the life of the loan.

So, when is it a bad idea to refinance? For the above example, it might not be smart to refinance if you plan to move in the next two years, which gives you little time to recoup the cost.

The question of when to refinance is not just about interest rates or your timeline, either its about your credit being good enough to qualify for the right refinance loan. The best rates and terms go to those with the best credit, so check your credit report to have a solid understanding of your risk profile. If youre carrying a high credit card balance or youve missed a payment recently, you might look like a riskier borrower.

Who Owns Your Home Loan

Refinancing Your Mortgage Is (Mostly) a SCAM! Here’s Why…
  • Theres a lot of confusion with regard to ownership here
  • The bank that originally funded your mortgage may have nothing to do with it today
  • It could have been sold off years ago to another company
  • But if they still own/service it, they may not be keen to offer you a refinance
  • In that case, just look elsewhere for a new lender who actually stands to benefit

Some of the confusion regarding whats in it for them might come from the fact that ownership of the loan is unclear.

So even though say Bank of America closed your loan, it could have been sold to Wells Fargo or some other lesser-known loan servicer after the fact.

That would explain Bank of Americas willingness to refinance your mortgage. They can make money on closing costs and make money by selling it off again or by servicing the loan.

If they actually hold onto the mortgage the second time around, they may not want to refinance it again in the future.

But if they sell it again, theres a good chance youll get an offer to refinance down the road. They may even urge to you cash out to make the loan even bigger and more profitable.

If you consider a mortgage broker, who closes loans on behalf of a variety of lenders, they can refinance your mortgage over and over with different banks and always make a profit regardless of where the loan ends up.

Theyll still earn their commission even if your interest rate goes up, down, or sideways.

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How Do Escrow Accounts Work

Escrow accounts hold money collected in advance. When property taxes or insurance premiums are due, the lender pays those for you.

Of course, the lender doesnt actually come up with the money. They simply make the payment from funds theyve already collected in the escrow account.

Lets say that your property requires the following annual payments.

  • Taxes: $4,000 per year
  • Homeowners insurance: $1,200 per year
  • Total: $5,200
  • Monthly amount collected by the lender: $433

To maintain the escrow account, the lender will collect 1/12 of the annual bill each month. So if your principal and interest payment on the mortgage is $1,500, your total mortgage payment to the lender would be $1,933 per month.

Mortgage Refinancing Options When Your Application Is Denied

Do not despair if a lender denies your application to refinance a mortgage. You might fear that you will be stuck making large mortgage payments with higher interest rates indefinitely, but you likely have more options.

First, find out why your mortgage application was denied. The law requires the lender to explain why your application was denied. You might want to correct the problem that triggered the denial first. Or, try another refinancing solution, such as one of the following:

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Have Your Home Appraised

Your mortgage lender will order an appraisal of your home to make sure its worth enough to secure the new mortgage. Youll generally have to pay for the appraisal as part of your closing costs, but some lenders waive this fee for existing clients or for other reasons, so be sure to ask if this is an option. Appraisals will generally run somewhere between $300 and $450, but they can cost more for a larger home in an expensive area.

Do You Qualify For A Mortgage Loan

Your Current Lender Desperately Wants You to Refinance ...

Bank statements are just one of many factors lenders look at when you apply for a mortgage.

Almost all areas of your personal finances will be under scrutiny including your credit score and report, your existing debts, and any source of income youll use to qualify for the loan.

These factors help determine how large of a loan you qualify for, as well as your interest rate. The cleaner your finances look across the board, the better deal youre likely to get on your new home loan or refinance.

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Do I Currently Have Equity In My Home

To determine how much equity you have in your home, youll use whats called loan-to-value ratio. This is calculated by taking the total mortgage debt you have and dividing it by the appraised value of your home. You can use our Home Equity Line of Credit Calculator to determine your home’s equity and how much of a loan you may qualify for.

Refinancing your loan can be a smart move for many people. You may be able to save money in the long term, and you also have options to take cash out. By working with a trusted lender, you’ll ensure you’re on the right path to achieving your financial goals.

Refinancing With The Same Lender Dont Expect A Break From Paperwork

You like the idea of lowering your mortgage loan’s interest rate through a refinance. But you’re not thrilled with having to provide the piles of paperwork that lenders need to verify your income, employment status and financial assets.

But if you refinance with the mortgage lender that is currently servicing your loan — the same one you send your home-loan payments to each month already — you won’t have to worry about gathering all that paperwork. Right?

Actually, no.

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A Guide To Bank Statements For Your Mortgage

6-minute read

Lenders consider a number of mortgage qualifications during the loan application process, from the type of property you want to buy to your credit score. Your lender will also ask you for a few different financial documents when you apply for a mortgage including your bank statements. But what does your bank statement tell your mortgage lender, besides how much you spend per month? Read on to learn everything your lender might glean from the numbers on your bank statement.

Does Refinancing Affect My Credit

Why You Should NOT WAIT To Refinance Your Mortgage – Refinance Home Mortgage

Refinancing a mortgage can have some impact on your credit, but its usually minimal. This can occur for multiple reasons:

  • Mortgage lenders conduct a credit check to see if you qualify for a refinance, and this appears on your credit report. A single inquiry can shave up to five points off your score.
  • If you plan to apply for other types of debt, such as a car loan or credit card, in addition to refinancing, your credit score can also be affected.
  • When you refinance, youre closing one loan and opening another. Your credit history makes up 15 percent of your score, so having one loan close and then taking on a new one shortens the duration, impacting your score.

In general, these effects will only be felt for a short period of time. If youre concerned about hurting your score while you compare refinance offers, try to shop for loans within a 45-day window. Any credit pulls related to your refinance in this timeframe will only be counted as one inquiry.

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Lock In Your Interest Rate

Once youre approved for your refinance, most mortgage lenders allow you to lock in your interest rate. With a locked rate, even if market rates rise before you close on the loan, your rate will stay the same. When you lock in your rate, you can start planning your monthly budget because youll have a good sense of how much your payments will be.

A Bank Vod Wont Solve All Bank Statement Issues

Verifications of Deposit, or VODs, are forms that lenders can use in lieu of bank statements. You sign an authorization allowing your banking institution to handcomplete the form, which indicates the account owner and its current balance.

VODs have been used to get around bank statement rules for years. But dont count on them to solve the abovementioned issues.

First, the lender can request an actual bank statement and disregard the VOD, if it suspects potential issues.

Second, depositories are also required to list the accounts average balance. Thats likely to expose recent large deposits.

For instance, if the current balance is $10,000 and the twomonth average balance is $2,000, there was probably a very recent and substantial deposit.

In addition, theres a field in which the bank is asked to include any additional information which may be of assistance in determination of creditworthiness.

Thats where your NSFs might be listed.

There are good reasons to doublecheck your bank statements and your application before sending them to your lender. The bottom line is that you dont just want to be honest you want to avoid appearing dishonest.

Your lender wont turn a blind eye to anything it finds suspicious.

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