When a type of mortgage replaces an existing loan on a residence it is referred to as no appraisal refinance.
When a lender is extending a new mortgage for a borrower’s home with a no appraisal refinance he does not require a separate professional assessment of a home’s value.
Compared to the original mortgage these new mortgages usually offer more favorable terms hence it replaces it.
There are several federal sources that offer no appraisal refinancing. Most private lenders, like banks and mortgage companies, often require appraisals for the process of refinancing.
As a means to stabilize poorer communities and demographic groups who might otherwise lose their homes in an economic decline, the federal sources offer refinancing options without a re-appraisal.
This public service effort provides some help to homeowners who are struggling to pay their mortgages instead of being forced to default on their homes.
Even though a no-appraisal refinancing is good for homeowners it gets risky for lenders. Because the lender performs appraisal homeowners are unlikely to qualify for a new loan hence they choose no appraisal refinancing.
If a homeowner’s home’s value has declined since they purchased it then they could find themself in this situation, and now their mortgage is underwater, where they owe more on their mortgage than the property is worth.
In such a case, if they default on the mortgage, the lender will not be able to sell the property for the balance of the outstanding mortgage, so they will face a loss.
Underwater mortgages are a result of a combination of events, many of them may not be under the homeowner’s control.
Several government sources offer no-appraisal refinancing:
All of these programs are especially helpful for at-risk homeowners.
Because of income limits or other qualifications many homeowners do not qualify for no-appraisal refinance programs, so taking a chance on an appraisal could be their only option for refinancing.
Even if these borrowers qualify, there are many reasons why it is better for them to refinance with a loan that requires an appraisal.
When a borrower buys their house with not as much of or less 20% down payment they would require to pay private mortgage insurance (PMI) in such a case an appraisal that shows the home’s value has increased could help them avoid PMI on their new loan.
The increase in market value, along with the amount of principal they have accrued by their old mortgage payments, will increase their equity in the home to 20% or more.
When the equity rises, the interest rate drops on the refinanced mortgage in contrast to what they could get with a federal no-appraisal loan.
As the borrowers with higher home equity are less likely to walk away from their homes, they are considered to be a lower risk by the lenders.
Though it is not necessary that the appraiser’s opinion of the borrower’s home value will be high enough to allow them to refinance or eliminate PMI.
If they opt for refinancing that requires an appraisal, the borrower must be ready to risk paying several hundred dollars fees along with no assurance of getting better loan terms.
A no-appraisal refinancing puts back an existing mortgage on a home and it means the homeowner does not require a new value assessment for the home.
When homeowners are unlikely to qualify for a new standard loan they choose a no-appraisal refinancing.
A no-appraisal refinancing is often offered by government agencies, like the Federal Housing Administration, Veterans Administration, and the Department of Agriculture.
The Year 2020 has been the best time for the housing market industry. With the mortgage going historical low it has surged the demand for purchase and refinances of homes.
When we say record-low mortgage rates means the best time to refinance your mortgage. It has never been a better time to refinance a home loan.
However, the Federal Housing Finance Agency (FHFA) began charging a mortgage refinance fee starting December 1st, 2020
The 0.5% adverse market refinance fee is imposed on lenders by Fannie Mae and Freddie Mac, and it would percolate to the borrowers when they refinance.
This 0.5% fee, known as the “the adverse market refinance fee“ when added to any new refinanced mortgages could impact the cost of your mortgage.
For a mortgage loan of $280,000, 0.5% of refinancing fees means $1400 extra for the lender when the loan is sold to Fannie or Freddie Mac and this extra cost will be passed on as higher interest rates to the homeowners.
As it takes close to two months to close on a refinance, the borrowers who have closed their loans within the last several weeks of October and November must have already paid this fee.
Because of the Covid-19 pandemic, Fannie Mae and Freddie Mac are experiencing losses of approximately worth $6 billion due to defaults and forbearance and to offset those losses the adverse market refinance fees are introduced.
Initially, it was scheduled to start on September 1st, 2020 but got delayed due to various reasons one of them being to give more time for the industry to be prepared.
About 70% of all home loans are purchase by the two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, from lenders and resell them to investors.
When Fannie Mae was announcing the fee, they explained in a letter stating that since refinance are viewed as a risk because it is just an appraisal and not market value of the property so it was a new loan-level price adjustment because of the market and economic uncertainty.
As this fee is wrapped into the rate they’re being offered by their lenders not many borrowers are worried about the new fees said Chris de la Motte, co-founder, and president at Simplist, an online mortgage marketplace he said it is close to negligible effect on the consumers because the cost is being absorbed by the lenders.
Some borrowers are spared this fee If the borrower’s principal balance is less than $125,000 then they are excused from this fee.
Also, the borrowers who are refinancing a VA loan and FHA loan are exempted. Similarly, if it is a new home loan then they are free from the fees.
Any mortgages that lenders sell to Fannie Mae and Freddie Mac are required to pay. But when you apply for a loan you may not know if your lender intends to sell your mortgage to either GSE.
Now we know that The FHFA directly charges the fee to lenders and not to borrowers, so the lender can pass the cost on to the borrowers either through rolling the fee into the interest rate or by adding the refinance fees into the closing costs as a one-time fee.
While many lenders have benefitted from both higher margins and higher volumes because of the booming market this year they’re able to absorb the cost and even now offer rates that are at all-time historical lows.
Many experts feel this fee is not a roadblock to refinancing. According to Freddie Mac, even now the average interest rates on 30-year fixed-rate mortgages are around 2.72%, which is the lowest rate on record.
So by refinancing their mortgage and locking in a lower rate close to 19 million homeowners can save over $300 a month on an average, which is a phenomenal saving, though there is no assurance that the rates will last for long and won’t shoot up soon.
Alan Chang, vice president of title operations at JetClosing said, to help them see how much the loan will cost including the interest rate and closing costs the borrowers should review their loan estimate with their lender.
So they will be able to identify how much can they be saved by refinancing.
Even with the 0.5% fee included the preferred lender can give a quote to the borrowers at any time to better understand how much they can potentially save.
For qualifying for the best interest rate a borrower’s credit score and debt-to-income ratio play a significant role.
Shopping around for a mortgage is always beneficial, since many lenders are in the mortgage space today, borrowers have the major advantage of lenders competing for their business.
There is no fixed time as to how long the adverse market fee will stay. So if you are eager to know when will the FHFA lift the fee? Most experts today are unsure, it could take a few years or longer.
So the advice here is to make hay while the sun shines!
According to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey, this new refinance fee is not driving away borrowers wanting to refinance, because mortgage refinances applications are rising.
Refinance applications in the week of November 20 had jumped 5% from the previous week and were 79% higher than this time a year ago.
Once a (Covid-19) vaccine has been widely distributed, it would be difficult to know how things will shape out. De la Motte said, in regards to the life of the adverse market refinance fees.
Looking at the current mortgage market the number of refinancing applications has skyrocketed since the last few months.
Many of these homeowners are refinancing for the first time and may need to know the costs behind refinancing.
It is a common question that is asked in the refinancing fraternity how much does it cost to refinance a mortgage? As most of you must be aware that you need to pay some fees to refinance.
In this post, we will understand the mortgage refinance fees in detail.
Refinancing can be a major stress reliever for you if you have a good loan officer. It could be possible that you might not know everything about what is going on and all the potential costs that are involved in a refinance.
Hence, you might need a loan officer who you trust, has enough knowledge, and is willing to share all the important fees to refinance with you.
Yes, 100%. It doesn’t matter if you are working with a lender, broker, or a credit union, there will always be some sort of cost associated with your refinance.
Even if it means there is no money out of your pocket. Some lenders may ask you to pay out of pocket others might just roll these refinance fees into your mortgage balance.
You as a borrower need to know the break up of fees to refinance and what it costs to refinance.
We will understand the mortgage refinance fees using a loan estimate which you will get when you start your refinance process from your lender or the broker. This will show you all the fees that can be and some that you should definitely look out for.
Not all lenders or brokers are going to send you a loan estimate, so please make sure you ask for one to get a complete break up of the mortgage refinance fees.
If the lenders are not able to send you a loan estimate, you can ask them to send a fee worksheet, it is basically the same thing.
In your loan estimate, the first page gives you information about your loan amount, interest rate, and your monthly payment.
Double-check if the balance is not significantly higher than your current balance and that you are comfortable with the interest rates and the monthly payments.
Once you have double-checked everything on page 1 and you are good to go, it is time to check page 2 where you have the itemized mortgage refinance fee structure.
The biggest thing that you will want to drill down on is ‘Section A’ or the first thing that you see is the loan cost.
This is the area where you can get ripped-off the most depending on which lender you are working with.
In section A, you will potentially see fees like application fees, underwriting fees, processing fees, etc. These fees are just a way for the lender to make more money and are not necessary.
You want to make sure you pay attention to those. However, one thing that is significant in this section is the discount points. A discount point is a fee that you pay upfront to buy down an interest rate.
One discount point equals one percent of the loan amount. This section shows a bulk of what your cost to refinance would be.
Section B on page 2 shows the type of mortgage refinance fees that the borrower cannot do anything about. Like an appraisal fee, credit report fee, flood cert, tax, tax cert, etc.
These are pretty much standard across the lenders. You, however, might want to know if you actually need an appraisal for your refinance because not all refinance transactions needs an appraisal.
That means you can save up to $500 on your refinance. Your loan officer is the right person to try and get you an appraisal waiver or “Property Inspection Waiver” (PIW) to save on the appraisal fees.
Section C, on page 2 shows the title fees. There is not much a borrower can do about these types of mortgage refinance fees either.
You can shop around with different Title companies and see if you can get cheaper prices. Though these are also pretty much standard across the lenders you won’t find much difference even if you shop around.
Section E on page 2 would give you some taxes and government fees if applicable on your loan.
Section F and Section G on page 2 you would see all the prepaids. Again, these are something that would be collected no matter which lender you decide to go with.
Your current lender holds an escrow account which is a bank account that has a bunch of prepaid property taxes and prepaid insurance payments saved in there.
You make these payments monthly to your lender however, your insurance policy is due every 12 months and your taxes are typically due every 6 to 12 months depending on your state.
So you make a payment every month for these entities which are saved in the escrow account and the lender will pay the property taxes and insurance from this escrow account whenever it is due.
When you refinance, your new lender needs to start a new escrow account in which they will collect the substantial amount to start with so that they don’t end up short in escrow.
The balance of your current escrow account will be refunded to you from your current lender within 30 days after your closing.
To know how much does it cost to refinance a mortgage, you need to add Section A, B, C, and E. Usually, the cost of refinancing should be 1-2 percent of the new loan amount if you are working with a competitive lender.
Most times you don’t really see these costs or feel these costs when you do a refinance, because everything gets rolled into the loan as most people don’t want to pay anything out of their pocket.
Understanding your refinance fee structure could make a huge difference for you to analyze when you would be breaking even and if it would make sense to refinance.