Buying a home is not just a big decision from a lifestyle perspective, but it is also a major financial decision. Usually, most people do not have the money to buy a home up front, so they use a mortgage. Sometimes, it is possible to refinance a mortgage and greatly reduce the overall cost of the loan.
In order to refinance a mortgage, you would of course have to already have a mortgage. If done properly, refinancing a home can be an excellent way of reducing monthly costs or dramatically reducing the amount of interest you will pay over the course of the loan. However, if you are not careful, it is possible to loose a great deal of money and end up worse off then you were to begin with.
There are a number of similarities to the process of getting your first mortgage and refinancing your loan. However, rather than simply going with the lowest offer, which is typically the way most people choose a mortgage, there are a number of important subtleties when it comes to refinancing a home.
If you are a homeowner, it is likely you have come across at least one advertisement proclaiming that you can cut your monthly payment in half by refinancing your home. These companies are not lying and can in-fact dramatically reduce your monthly mortgage payment. However, often this is at the expense of extending the period of your loan, which in turn means you end up paying more in interest.
Also, these companies are often predatory lenders, who are very aggressive and when you are done, you have virtually lost all the equity in your home that you worked so hard to build up.
Refinance Loans are very similar to mortgages and you must follow the same types of regulations as other
Common sense would say that if you have been paying a higher mortgage payment for many years, the lender would automatically approve a refinance loan with a lower monthly rate, but this is not the case. Instead, it is almost always necessary to follow the same sort of application process that a person would when they are applying for the initial mortgage. It is almost always necessary to prove employment history, as well as showing your assets and running your credit when refinancing a loan.
The exception to this rule, however, is FHA Loans that are offered by the Federal Housing Administration and VA Loans, that are offered by Veterans Affairs. Both of these Government Agencies offer what is called a streamline refinance. As part of the streamline refinance, as long as the monthly payments are lower, credit is almost never an issue. Usually, the only requirement is that the homeowner has not been late on a payment over the course of the last 12 months.
There will always be those who try to profit from the misfortunes of others and the current housing market woes are no exception. There are many scams and pit falls that a new home owner can fall into, especially one that is having trouble making their monthly mortgage payments. One such scam, which has grown explosively over the last few years, comes in the guise of Loan Modification Companies.
When someone is behind on their mortgage payments or having trouble making each payment, it often causes them to want to look for an easy fix, so they drop their defenses a little bit. This is exactly what a loan modification company counts on, as they specifically target those in foreclosure or who are struggling to make each mortgage payment.
The loan modification scam usually starts with a letter, a dishonest website, or a call from a telemarketer, which promises that the company can help refinance the mortgage and secure the homeowner a much lower interest rate. These individuals, who are usually nothing more than snake-oil telemarketers who are adept at social engineering, pray upon the fears and troubles of those facing foreclosure, promising to speak with the mortgage holder and negotiate better turns.
However, before they will do any work, they require a large upfront payment. Often, the telemarketers will encourage the homeowner to stop paying their mortgage payments and instead pay the loan modification company, with the promise that they will be able to get the mortgage refinanced.
What loan modification companies won’t tell you, however, is that they can not stop foreclosure and have no direct association with any reputable lenders. Instead, they take the homeowners money, usually at the expense of paying their actual mortgage, only to cut off communication once they have conned enough money from the homeowner.
It is easy to ask how this is possible and much of it has to do with the mind state of those that are facing foreclosure, who are searching for anything that might help them save their home and credit.
However, the companies also operate in a manner that avoids much regulation, by changing their names frequently and setting up dummy corporations. There are hundreds of websites developed by these loan modification hucksters, which are designed to generate leads for their telemarketers.
Usually, by the time people start reporting these companies to the Better Business Bureau or other regulatory agencies, the loan modification company has already moved on.
Today, loan modification firms are more prevalent and profitable than ever, praying off of the large number of foreclosures.
One of the biggest warning signs of a loan modification firm is that they require money up front, before doing any work. This is common amongst most credit fixing scams, so should immediately raise warning flags. Also, if they suggest not paying your mortgage, this is also an indication that they are not operating in your best interests.
It is also very important to research the companies and keep in mind if you can’t find any information on sites like the Better Business Bureau, they could very well be trying to scam you.
This is not to say that all organizations that help fix credit or prevent foreclosure are bad, with there being a number of not-for-profit organizations and several government programs that are designed to do just this. However, it is extremely important to research the company and use good judgment, rather than letting the fear tactics of these scam artist work against you.