When it comes to refinancing, timing is everything.
And according to industry experts, borrowers who want to save on their mortgage should consider refinancing by Tax Day, 2013, which falls on Monday, April 15.
"A borrower who might get approved today might not be able to get approved in April," says Steven Bote, a senior mortgage consultant with Wintrust Mortgage, a financial services holding company based in the Chicago area. "So don't put off what you can do today until tomorrow."
Bill Burnett, president of Homestead Mortgage in Lorton, Virginia, says rising home mortgage interest rates, ever-tightening loan qualifying standards, and increasing Federal Housing Authority (FHA) mortgage insurance premiums are among the reasons borrowers should consider refinancing by Tax Day.
Keep reading to learn more about why you should refinance now.
Reason No. 1: You won't need to show your 2012 income
If you're stressing out about filing your taxes in time for a refinance, we've got some good news: If you refinance before Tax Day and have yet to receive your 2012 return, the lender must accept your 2010 and 2011 tax returns instead.
"The two years of income tax filings is a blanket approval guideline," Bote says, "but it's a standard exception that you won't be required to have approval of last year's returns given that there is a deadline imposed by the Internal Revenue Service (IRS). The bank can't require you to do so."
However, the lender could ask you to provide alternative forms of income verification that's up-to-date, such as your most recent pay stubs, according to a mortgage guide published by the U.S. Department of Housing and Urban Development (HUD). This requirement helps protect lenders against borrowers who might have had sub-par earnings last year.
Of course, as with any tax-related matters, it's always wise to consult with your accountant, tax professional, and lender about the best way to approach your refinance.
Reason No. 2: Beat the changes to FHA mortgage insurance
Interested in obtaining a government-sponsored FHA loan? If that's the case, you might want to get your refinance process in gear before Tax Day.
According to the HUD, there will be changes coming on April 1, 2013, to policies concerning the cancellation of its annual Mortgage Insurance Premium (MIP) and increase to the annual MIP.
The HUD's website defines MIP as "a monthly payment - usually part of the mortgage payment - paid by a borrower for mortgage insurance." The policy is designed to help protect lenders against losses that could occur when a borrower defaults on a mortgage loan.
Increases in the amount of MIP will take effect for FHA case numbers assigned on or after April 1. And as of June 3, 2013, FHA will rescind the automatic cancellation of the annual MIP collection once a homeowner reaches 22 percent equity. This means borrowers will be responsible for paying premiums for a longer period than they had before.
"You want to try and get your loan in before the increases," Burnett says. "Because the mortgage insurance is going up, it could put you in position that you don't qualify for the loan."
The policy changes are effective for single family FHA loan programs, but to check for any exceptions or a more detailed explanation, don't hesitate to contact HUD or a mortgage lender.
Reason No. 3: Loan qualifications are getting tighter
As we move further along into 2013, tightening loan requirements could make it more difficult for borrowers who want to refinance.
In fact, the Consumer Financial Protection Bureau (CFPB) announced the Qualified Mortgage - or QM Rule - that is expected to set new standards and requirements for lenders. The goal is to make sure borrowers are, indeed, qualified for the loans that are approved for them.
If adopted this spring, the CFPB reports the QM Rule will go into effect in January of 2014.
In announcing the QM rule, the CFPB released a statement which read, in part: "When consumers apply for a mortgage, they often struggle to understand how much of a monthly payment they can afford to take on."
For this reason, Bote says the new standards could knock some borrowers out of the ranks of qualified if they don't refinance before the New Year.
Reason No. 4: Interest rates trending up
Remember the record-setting low mortgage interest rates of a few months back? Well, that was so 2012.
In 2013, if you're waiting to see whether interest rates will take a similar dip before refinancing, you could be in for a rude awakening beyond, let's say, Tax Day.
"If they are lower, then holding off will be to your advantage," Bote says of interest rates. "But who's to say the interest rates will be lower this year?"
According to a compilation of Freddie Mac's "Weekly Primary Mortgage Market Surveys," interest rates are actually trending up. It shows that the average interest rate for a standard 30-year fixed-mortgage was 3.34 percent for the week of January 3 and has since increased to 3.56 for the week of February 21.
What's more, the Mortgage Banker's Association predicts that by Q4 of this year, the interest rate for the same loan will rise to 4.4 percent.
So, if you're hoping to refinance at a low mortgage rate, don't hold off any longer. These low rates aren't sticking around forever.
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