Refinancing a home mortgage involves taking out a new loan to pay off your current one. While the benefits might not be immediately obvious to some borrowers, there are quite a few of them if you opt for this type of loan.
Homeowners typically decide to refinance when they become eligible for lower interest rates, or when they need to liquidate a portion of their home equity. Refinancing can also help to shorten the mortgage term, eliminate the private mortgage insurance (PMI), and allow you to switch between fixed and adjustable rates.
Although these perks are appealing to most borrowers, not everyone is eligible for a refinance loan, especially those who’ve defaulted on their payments. So, let’s see what you can do to refinance with late mortgage payments.
How Refinancing Usually Works
The process of refinancing a mortgage is similar to the process of obtaining a mortgage to purchase a home. You’ll need to compare different lenders, evaluate their terms, conditions, rates and fees, then contrast it all against your current loan.
You’ll also need to check your eligibility before you start sending in applications. Applying for a loan without meeting the lender’s eligibility criteria will result in a denied application and could have a hard inquiry that may lower the score temporarily.
All refinance mortgage applicants need to meet requirements regarding their credit scores, income, and equity. Even if you’re applying for a refinance loan with your current lender, you’ll need to meet their standard applicant criteria.
Lenders will also look into your current mortgage to see if you’ve defaulted on your payments in the past 12 months. If you have, you likely won’t be able to get a refinance loan.
Just missing the due date won’t necessarily be reported as a late payment. A vast majority of lenders will only report late payments to the credit bureaus if you’re over 30 days late, in other words – if you don’t make a payment until the next due date. You will, however, encounter the late payment fee unless the lender offers a grace period.
Your Options to Refinance With Late Mortgage Payments
If you’ve defaulted on your payments, you still have a few refinancing options. Many private lenders will overlook a single late payment in the past 12 months if you have a valid reason for being late and if your credit score, income, and assets are in excellent standing.
Borrowers who currently have an FHA loan might be eligible for an FHA streamline refinance, which may allow for one late payment within the past 12 months, as long as it was over six months ago. Additionally, if you’ve had the loan for under a year and haven’t missed the payment deadline by over 30 days, you could still be eligible for a streamline refinance.
Borrowers who currently have a VA loan could qualify for a VA streamline refinance with late mortgage payments. VA streamline refinance loan may allow for one late payment within the past 12 months, as long as it was over three months ago.
If you’ve had multiple late payments in the past year and are looking to refinance, your only solution is patience. Try and make timely payments for the next year, then see what your refinance options are then.
Getting Appraisal Waivers When Refinancing
As mentioned, refinancing a loan is a process very similar to applying for your first mortgage. It usually includes similar closing costs, such as the appraisal fee (which can be as much as $700, but is usually closer to $525).
All three of these loans have streamlined options that don’t require appraisals. The only requirement is that you already have the FHA/USDA/VA loan and are current on your payments.
Getting an appraisal waiver is also a possibility if you have a conforming conventional loan. These loans conform to the guidelines set by Fannie Mae & Freddie Mac and depending on the type of refinance, your lender may be able to determine the value of your home that Fannie Mae & Freddie Mac will accept without needing a new appraisal.
Pros of Refinancing Without an Appraisal
Appraisals typically cost between $400 and $700, and it’s up to the borrower to cover these costs. Not to mention that appraisals take time, and you could be delaying closing the refinance deal if you go through with it. So, the immediate pros of refinancing without an appraisal are evident.
However, you could also benefit from skipping the appraisal if you believe that the value of your home hasn’t increased since you applied for your first mortgage. It’s possible that the appraisal can even show lower home value than you’ve expected, so you could get a much lower refinance amount.
An appraisal waiver can help you save time and money, and make the process of refinancing a mortgage much easier.
Cons of Refinancing Without an Appraisal
Of course, there are also many instances in which you could benefit from a new appraisal. If your home’s increased in value, you’d get a higher appraisal, which would lower your Loan to Value ratio (LTV) and subsequently lower your interest rates.
Lower interest rates would offset the appraisal costs within months, and by the time you’ve paid off your loan, you’d be looking at much higher savings.
Additionally, if your home’s value increases and you have 20% home equity, you could get rid of your PMI and lower the entire loan costs.
The Bottom Line
Refinancing with late mortgage payments and without appraisals is entirely possible, although your options could be limited.
Contact our experts at GO Mortgage to learn about our loan refinance program and determine your best refinance options.
You can also ask about our single close construction loans if you are building a home.