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Tuesday, January 27, 2009

ASK THE LOAN MAN: Your Loan…Refinance or Modify?

Your Loan…Refinance or Modify?

OK, let’s start with my area of expertise – refinancing. With almost 2 decades in the real estate and mortgage business, I have helped thousands of people get into a home or refinance the home they are in. I have traveled the country and spent thousands of dollars to further my education and I am most definitely an expert and I am going to give you the exact same advice that I give to every one of my clients when they ask – Should I refinance?......
My answer is I DON’T KNOW!

Well there you go, you now have free expert advice. Here is the deal, I honestly don’t know until I run the numbers. If the answer is yes then I don’t know exactly what loan program or features you should get until we compare options on a spreadsheet. These days, most people are getting a 30 year fixed rate because they are so low (Yes, rates are 4.5% to 5.5% right now). There are a lot of choices when getting a 30 year fixed rate mortgage: Points or no points? - Pay the costs out of pocket or roll them in? – Should I pay off debts? – Should I take some cash? etc. etc.

The hardest part about refinancing today is that we have much different questions that we have to ask and some of the answers are making it impossible for people to refinance. Some people who would have qualified 2 years ago won’t qualify today. The house that I live in and the duplex I rent out have both lost equity to the point that I simply don’t have enough equity to refinance and so I can’t even get a loan for myself.

So, what happens when you can’t refinance? Well, in my case, I wait. I can’t get a better interest rate and selling doesn’t make sense so I wait. Luckily for me, that was my plan anyway. Some people will want to take a look at a loan modification and this is a completely different animal from a refinance.

A loan modification is when you contact your current mortgage holder and you ask them to modify the terms of your mortgage. The bank can lower the interest rate, take past due amounts and tack them on to the back of the loan, lower the principal balance, let you skip a couple of payments… Why would the bank do this you say? That is a good question and you need a really good answer or they won’t. If you are behind on payments and your mortgage has just adjusted from a low rate to a higher rate then you may be a good candidate for a loan modification. If you just don’t have enough equity to fit into a refinance and you want a better rate then you are not a good candidate for a modification.

You entered into a contract for a mortgage and the bank wants to get paid. If they feel you are in danger of losing the house to foreclosure then they will want to work with you to keep you in the home and save their loan. The bottom line is that you need to prove to the bank that you can’t continue on the path that you are on and then you need to show them what you can do and strike a bargain. A couple of things to consider….. Getting them to lower your principal is almost out of the question and getting them to even speak with you if you are current with your payments probably won’t happen either. I am not a loan modification expert and I do not do them for my clients. There are a lot of new companies out there and many of them are predatory companies looking to make a quick buck. I have been offering advice to clients and referrals to reputable companies and helping clients prepare to tackle these on their own.

I welcome questions about home loans and the real estate market in general. Please let me know what you want to hear about in future articles.

Hans Bruhner, CMPS is licensed in CA & HI. If you have a question, please contact Hans at (707) 887-1275 or . First Priority Financial, Inc. is licensed by the CA DRE #00654852.