Unfortunately, in today’s collapsing housing market, hundreds of thousands of homeowners are realizing this fact. This is most often the result of buying a home with no down payment or tapping into the equity of your home with some form of 100% financing. The worst case scenarios for homeowners are those situations where there is an impending ARM adjustment in one to three years where the homeowner had planned to refinance or sell before mortgage rates adjust higher.
So what’s a homeowner to do? The good news is that there are a number of things that can be done. The first part is related to refinancing and the second part is related to improving your home.
If you originally got a high-interest mortgage because of bad credit, Start repairing your credit today! Typically, the sad truth is: the better your credit score, the lower your interest rate! Push yourself to pay off your debts and make sure you make ALL your payments on time. Even paying your cable bill late can often hurt your credit! Lower your debt to income ratio is one of the quickest ways to improve your credit score.
If your current mortgage is a reported income or subprime mortgage because the income is difficult to document, you will need to speak to your accountant or tax professional. Remember that you pay a higher interest rate for up to 40 years. Work with your accountant and mortgage professional to analyze the situation. Your goal is to have enough documented income to qualify for a conforming mortgage, which carries a lower interest rate throughout the life of the loan.
Once you’ve increased your documented income, look for a lender who can give you the best deal. With our diverse lender network We do all the hard work of searching to find up to 4 lenders that can give you a great deal.
House related improvements
Get an accurate estimate even if you need to have a new one made. Pay close attention to negative adjustments between your home and comparable homes. It gives you a basic starting point for what changes you should make to improve the value of your home. While many people are reluctant to put extra money into their home, new windows, a new kitchen, or even a new roof can add significant value to your home and provide a significant return on your investment. Don’t hesitate to pick up the phone and ask your reviewer what you think you should improve.
Putting a few thousand dollars into your home can often add so much value to your home that your Loan to Value Ratio (your mortgage amount over the value of your home) is within the acceptable range for most lenders (typically 90% or less, especially in the current mortgage market). While you might have a few thousand dollars out of your pocket up front, if you can save $50, $100, or more off your monthly payment, you can recoup that return in no time.
Most of the work should be done by you, the homeowner, if possible. Being able to do the job yourself or knowing a friend or family member who can do the job for you at minimal cost can mean huge savings on your investment and greatly increase your return on your home improvement jobs. If you use contractors, only use them for critical building codes like electrical, structural, and some plumbing, otherwise you could make your situation worse by overpaying for those improvements.
Check with a real estate agent, which is what buyers in your neighborhood are looking for, but make sure you don’t overdo it. It’s extremely difficult to get a $10,000 return on granite countertops in many places, so make sure you don’t overspend if it won’t help you in the long run.
You should carefully weigh the savings you can achieve from refinancing against the potential costs or penalties. Any homeowner can refinance their mortgage; The key is to weigh your options to determine if refinancing is the best option for your situation.