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How to Find the Best Refinance Companies for Mortgages

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Refinancing your mortgage can be a smart way to reduce your monthly payments and cut down on the amount of interest you’ll pay over the life of your loan. But it’s important that you choose the right lender to make the best financial decision for your home and budget.

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First things first: What exactly is refinancing? Simply put, refinancing is the process of replacing your current mortgage with a new one with different terms. There are several reasons you might decide to refinance. Maybe you want to take advantage of lower interest rates to secure a lower monthly payment or to shorten, or even lengthen, your total loan term. You also might want to change the kind of mortgage you have, such as switching from a fixed rate to an adjustable rate.

You might be able to secure a lower interest rate because the market shifted, or perhaps your credit score has improved since you first took out the mortgage, making you eligible for better terms. Currently, interest rates are hovering around 4.375% for a 30-year fixed loan for someone with good credit. Rates have been creeping upward over the last year, but you may still benefit from refinancing if you took out your mortgage back when rates were higher.

There are two main types of refinancing: traditional and cash-out. With traditional refinancing, you take out a new loan with a new rate and term. In cash-out, on the other hand, you take out a loan bigger than your remaining mortgage and get cash for the difference, which can then be used for remodeling, debt consolidation or another big expense. You’ll want to decide which approach to take before you get too far into the process.

What makes one mortgage refinance company better than another?

There are many types of mortgage refinance lenders to choose from: banks, credit unions, mortgage companies. In addition, you can take out a loan through a mortgage broker. Regardless of what type of lender you choose, it’s very important to do some comparison-shopping.

The cost of a refinance will vary from lender to lender based on their interest rates, the fees they charge and other terms of the loan. That’s because each institution is different and their costs and regulations vary based on their location, operating expenses, profit margins, risk assessment and more. Credit unions, for example, often have lower interest rates because they are nonprofit and member-owned. And if you use a mortgage broker, you’ll have to pay a fee for his or her services.

If you’re happy with your current mortgage lender, that’s a probably a good starting point in your search. Because you’re already a customer, they have your information (although they’ll still require updated documents). They also may be willing to waive certain fees and costs to keep you around. For example, if you have a prepayment penalty on your current mortgage — a fee charged for paying off a mortgage early — your current lender might agree to waive the fee to keep your business.

Otherwise, you should look for lenders whose rates and fees are in line with other comparable lenders and who are responsive to questions you have. All lenders and brokers should be able to give you an estimate of their fees.

And just as you look at Yelp! reviews before choosing a restaurant, you should read reviews on mortgage refinance lenders, too. Two good places to start are the Better Business Bureau website and the Consumer Financial Protection Bureau’s (CFPB) Consumer Complaint Database. Also, take a look at market research firm J.D. Power’s U.S. Primary Mortgage Servicer Satisfaction Study, which measures customer satisfaction in seven areas.

How to find the best mortgage refi company for you

The best mortgage refinance company is the one that most closely meets your needs. Maybe you’re new to refinancing and need a lot of handholding, maybe you need to close quickly or maybe you just want someone to do the legwork for you and get you rates and terms to compare. And of course, it’s important to work with a reputable company as well. Use your goals to guide your choice.

Cost

For many people, cost is king and they want the lowest refinancing rates available. Just keep in mind that the interest rate itself doesn’t tell you the whole story. You need to also consider points if they’re added on to your refinance deal. Points are fees you pay, typically at closing, in order to lower your interest rate. In general, the more money you pay upfront in points, the lower the interest rate. Ask any lender for the loan’s APR (annual percentage rate), not just the interest rate, because that takes into account points, broker fees and other charges you might have to pay. If you’re looking at an adjustable rate, ask whether the loan payment would go down if interest rates drop.

Customer service

Many borrowers place a high priority on customer service, particularly if they’re not familiar with the refinancing process. If you’re feeling wary of the paperwork, working with a company known for its responsive service may be especially important. You can do some “gut-check” research by seeing how user-friendly the company’s website is, and how responsive they are to your questions.

Speed

If you’re in a time crunch to close on your refinance, you’ll want to ask potential lenders the average time it takes them to close.

Compare quotes and pick the best option for your situation

When you shop around, you’ll find that rates vary from lender to lender. You can start by reviewing advertised rates listed on the company’s website or in an advertisement, but the actual rate you get could be quite different. That’s because the advertised rate will require borrowers to meet a host of specific criteria, such as their credit rating and their loan-to-value ratio (LTV). The better your credit score, the better your interest rate is likely to be. The same is generally true for your LTV, the relationship between the amount borrowed and the home’s value. The more you have paid off on your home loan, the lower your LTV.

The terms you’re seeking in the refinancing also affect your rate and may result in a different offer for you than the advertised rate. Given all these factors, you need to contact different lenders directly to get quotes personalized to your situation. Advertised rates can give you a ballpark idea of different rates, but they won’t tell you exactly what you can expect.

Apply for a loan from several lenders to see what terms they can offer. Each lender is required to provide you with a Loan Estimate document within three business days of getting your application. This detailed breakdown of costs and fees will show you the interest rate, monthly payment, closing costs and more, and will give you a preliminary picture of your true costs.

Be sure to compare “apples to apples” — that is, scrutinize the same loan terms across different lenders. If you’re considering a conventional 15-year loan from one lender, for example, request the same from the others as well. Once you have several offers, negotiate with the different lenders. Let them know you’re comparing their terms to those of their competitors. By encouraging lenders to compete against each other, you can help yourself secure your best deal.

Conclusion

By carefully comparing your options and negotiating, you can save thousands of dollars on the cost of your refinancing. To do this, put in care and effort throughout the process, and you will end up with a refinancing deal that helps you meet your financial goals.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.

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Mortgage

How to Recover From Missed Mortgage Payments

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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understanding good faith estimate vs loan estimate
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Can you bounce back from a missed mortgage payment or two? The answer is yes, but there’s work involved. After all, your payment history has the greatest impact in determining your credit score.

Falling behind on your mortgage payments can affect your credit and finances, and you could lose your home to foreclosure. It’s critical to be proactive and not wait until it’s too late to get help.

How missed mortgage payments affect your credit

In most cases, mortgage lenders give you a 15-day grace period before charging a fee — often around 5% of the principal and interest portion of your monthly payment — for late payments. But your credit history typically isn’t impacted until you’re at least 30 days behind on a mortgage payment. At this point, your mortgage servicer may report your late mortgage payment to the three major credit reporting bureaus: Equifax, Experian and TransUnion.

Your credit score could drop by 60 to 110 points after a late mortgage payment, depending on where your score started, according to FICO research. Being 90 days late on your loan could lower your score by another 20 points or more.

It can take up to three years to fully recover from a credit score drop after being a month behind on your mortgage, FICO’s research found. Once you’re three months behind on your mortgage, that time can increase to seven years.

Recovering from missed mortgage payments

Falling behind on your mortgage can be a frustrating and scary experience, particularly if you’re facing the threat of foreclosure. Here are some options to help you get back on track after missed mortgage payments:

  • Repayment plan. Your loan servicer agrees to let you spread out your late mortgage payments over the next several months to bring your loan current. When your upcoming payments are due, you’d also pay a portion of the past-due amount until you catch up.
  • Forbearance. Your servicer temporarily reduces or suspends your monthly mortgage payments for a set amount of time. Once the mortgage forbearance period ends, you’ll repay what’s owed by one of three ways: in a lump sum, a repayment plan or by modifying your loan.
  • Modification. A loan modification changes your loan’s original terms by extending your repayment term, lowering your mortgage interest rate or switching you from an adjustable-rate to a fixed-rate mortgage. The goal is to reduce your monthly payment to a more affordable amount.

Be proactive about getting back on track and reaching out to your lender for help instead of waiting until you get late payment notices. If you think you’ll be behind soon or are already a few days behind, make contact now and review your options.

Extra help for homeowners affected by COVID-19

If you’re behind on mortgage payments because of a financial hardship due to the coronavirus pandemic, you may qualify for a mortgage relief program through the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Homeowners who have federally backed mortgages, and conventional loans owned by Fannie Mae or Freddie Mac, can request mortgage forbearance for up to 180 days. They can also request an extension for up to an additional 180 days.

Federally backed mortgages include loans insured by the:

  • Federal Housing Administration (FHA)
  • U.S. Department of Agriculture (USDA)
  • U.S. Department of Veterans Affairs (VA)

Reach out to your mortgage servicer to request forbearance. Even if your loan isn’t backed by a federal government entity, Fannie Mae or Freddie Mac, your servicer may offer payment relief options. You can find your servicer’s contact information on your most recent mortgage statement.

How many mortgage payments can you miss before foreclosure?

Your lender can begin the foreclosure process as soon as you’re two months behind on your mortgage, though it typically won’t start until you’re at least 120 days late, according to the Consumer Financial Protection Bureau. Still, it’s best to check your local foreclosure laws since they vary by state.

Here’s a timeline of how missed mortgage payments can lead to foreclosure.

30 days late

Your lender or servicer reports a late mortgage payment to the credit bureaus once you’re 30 days behind. Your servicer will also directly contact you no later than 36 days after you’re behind to discuss getting current.

45 days late

You’ll receive a notice of default that gives you a deadline — which must be at least 30 days after the notice date — to pay the past-due amount. If you miss that deadline, your servicer can demand that you repay your outstanding mortgage balance, plus interest, in full.

Your mortgage servicer will also assign a team member to work with you on foreclosure prevention options. This information will be communicated to you in writing.

60 days late

Once you’re 60 days late, expect more mortgage late fees, as you’ve missed two payments. Your servicer will send you another notice by the 36th day after the second missed payment. This same process applies for every month you’re behind.

90 days late

At 90 days late, your servicer may send you a letter telling you to bring your mortgage current within 30 days, or face foreclosure. You’ll likely be charged a third late fee.

120 days late

The foreclosure process typically begins after the 120th day you’re behind. If you live in a state with judicial foreclosures, your loan servicer’s attorney will file a foreclosure lawsuit with your county court to resell the home and recoup the money you owe. The process may speed up in nonjudicial foreclosure states, because your lender doesn’t have to sue to repossess your home.

You’re notified in writing about the sale and given a move-out deadline. There’s still a chance you can keep your home if you pay the amount owed, along with any applicable legal fees, before the foreclosure sale date.

Can you get late mortgage payment forgiveness?

If you’ve otherwise had a good payment history but now have one missed mortgage payment, you could try writing a goodwill adjustment letter to request that your servicer erase the late payment information from your credit reports.

Your letter should include:

  • Your name
  • Your account number
  • Your contact information
  • A callout of your good payment history prior to missing a payment
  • An explanation of what led to the late mortgage payment
  • The steps you’re taking to prevent late payments in the future

End the letter by requesting that your servicer remove the late payment from your credit reports, and thank your servicer for their consideration. Print, sign and mail your letter to your servicer’s address.

The letter is simply a request; your servicer isn’t required to grant late mortgage payment forgiveness. If your servicer agrees to remove the late payment info from your credit reports, your credit scores may eventually increase — so long as you continue to make on-time payments.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.

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Mortgage

What Is the Minimum Credit Score for a Home Loan?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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If you’re hoping to become a homeowner, your credit score may hold the keys to realizing that dream. Knowing the minimum credit score needed for a home loan gives you a baseline to help decide if it’s time to apply for a mortgage, or take some steps to boost your credit first.

It’s possible to get a mortgage with a score as low as 500 if you can come up with a 10% down payment. Keep reading to learn the minimum credit score requirements for the most common loan programs.

What are the minimum credit scores for home loans?

Your credit score plays a big role in determining whether you qualify for a mortgage and what your interest rate offers will be. A higher credit score means you’ll likely get a lower rate and a lower monthly mortgage payment.

There are four main types of mortgages: conventional loans, and government-backed loans insured by the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA). Conventional loans, which are the most common loan type with guidelines set by Fannie Mae and Freddie Mac, have a credit score minimum of 620. Although some loan programs don’t specify a minimum credit score needed to qualify, the approved lenders who offer them may set their own minimum requirements.

The table below features the minimum credit scores for these home loans, along with minimum down payment amounts and for whom each of the loans is best.

Loan type

Minimum credit score

Minimum down payment

Who it’s best for

Conventional6203%Borrowers with good credit
FHA500-579 with 10% down payment
580 with 3.5% down payment
10% with a score of 500-579
3.5% with a minimum score of 580
Borrowers who have bad credit and are purchasing a home at or below their area FHA loan limits
VANo credit minimum, but 620 recommendedNo down payment requiredActive-duty service members, veterans and eligible spouses with VA entitlement
USDA640No down payment requiredBorrowers in USDA-eligible rural areas with low- to moderate-incomes

What is a good credit score to buy a house?

Meeting the minimum score requirement for a home loan will limit your mortgage options, while higher credit scores will open the doors to more attractive rates and loan terms. A good credit score can also provide you with more choices for home loan financing.

  • 740 credit score. You’ll typically get your best interest rates for a conventional mortgage with a 740 (or higher) credit score. If you make less than a 20% down payment, you’ll pay for private mortgage insurance (PMI). PMI protects the lender in case you default on your home loan.
  • 640 credit score. Rural homebuyers need to pay attention to this benchmark for USDA financing. Exceptions may be possible with proof that the new payment is lower than what you’re paying for rent now.
  • 620 credit score. The bare minimum credit score for conventional financing comes with the largest mark-ups for interest rates and PMI.
  • 580 credit score. This is the bottom line to be considered for an FHA loan with a 3.5% down payment.
  • 500 credit score. This is the lowest credit score you can have to qualify for an FHA loan, but you must put 10% down to qualify.

Annual percentage rates by credit score

Your mortgage rate is a reflection of the risk lenders take when they offer you a loan. Lenders provide lower rates to borrowers who are the most likely to repay a mortgage.

Here’s a glimpse of the annual percentage rates (APRs) and monthly payments lenders may offer to borrowers at different credit score tiers on a $300,000, 30-year fixed loan. APR measures the total cost of borrowing, including the loan’s interest rate and fees.

FICO Score

APR

Monthly Payment

760-8503.011%$1,267
700-7593.233%$1,303
680-6993.410%$1,332
660-6793.624%$1,368
640-6594.054%$1,442
620-6394.6%$1,538
*Based on national average rate data from myFICO.com for a $300,000, 30-year, fixed-rate loan as of May 4, 2020.

As the credit score ranges fall, the interest rates are higher. Borrowers with a score of 760 to 850, the highest range, saw an average monthly payment of $1,267. Borrowers in the lowest credit score tier of 620 to 639 saw their monthly payment jump to $1,538. The extra $271 in monthly payments adds up to an additional $97,560 in interest charges over the life of the loan.

Steps for improving your credit score

Now that you have an idea of the extra cost of getting a minimum credit score mortgage, follow some of these tips that may help boost your score.

  • Make payments on time. It may seem obvious, but recent late payments on credit accounts hit your scores the hardest. Set your bills on autopay if possible to avoid forgetting to pay one.
  • Pay off balances monthly. Try to pay your entire balance off each month to show you can manage debt responsibly.
  • Keep your credit card balances low. If you do carry a credit card balance, charge 30% or less of the available credit limit on each account.
  • Have a mix of different credit types. Mortgage lenders want to see you can handle longer-term debt as well as credit cards. A car loan or personal loan will help demonstrate your ability to budget for installment debt payments over time.
  • Avoid applying for new accounts. A credit inquiry tells your lender you applied for credit. Even if you were applying to get your best deal on a credit card or car loan, multiple inquiries could drop your scores, and give a lender the impression you’re racking up debt.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.