HOME LOAN MODIFICATION VS REFINANCE

There are many variables to be applied before you can determine if refinancing your Texas home loan is more advantageous then obtaining a Texas home loan modification.

Credit Score is a major factor for a home loan refinance

One of the first and most important question is, where is your credit score at this time.  If you have taken advantage of the CARES Act forbearance program, then while your Texas home loan is in forbearance, no derogatory marks will be entered by your Texas home loan mortgage servicer.  However, if your forbearance has ended and you did not work out a repayment arrangement with your lender or if your home mortgage lender is demanding payment in full for the mortgage arrears, then most likely missed payments have been reported to the credit bureaus. (Experian, Equifax, and Transunion). So, it is best to check your credit score first which may make the decision if refinancing your Texas home loan is even an option.

Generally, most lenders want a minimum credit score of 720, but with some Texas home loan mortgage lenders want a borrower to have a score of 760+ to obtain the best interest rate.

However, there are lenders that will relax their credit score requirements, dependent upon what the LTV (Loan to Value) percentage the Texas home loan would be for.  Fannie Mae/Freddie Mac loans permit a maximum of an 80% LTV for one of their guaranteed loans.  The lower the LTV percentage is, the more likely the Texas mortgage lender will relax their credit score requirements.

If your credit score is not within the range traditional Texas home mortgage lenders require, it is best to utilize a mortgage broker, who will shop a number of traditional and portfolio lenders on obtaining the best rate available.

Timely payments can be a deal breaker for a home loan refinance.

Most lenders will not refinance your Texas home loan mortgage while you are in active forbearance.  If your forbearance has ended and you were unable to make your new monthly mortgage payment, most lenders will deny you for refinancing.  Depending on how long you have been out of forbearance, they may look at the pay history prior to the forbearance starting.

What Is A Loan Modification and what are the benefits?

Texas home loan modification is a change to the original terms of your mortgage loan. A Texas home loan modification does not pay off your current home mortgage, instead, it directly changes the terms and conditions of your loan. You can read how a Texas home loan modification works by clicking here.

What does It mean to refinance your Texas home loan mortgage and what are the benefits?

A home loan refinance is exactly that, you replace your current home loan with a new mortgage when you refinance. This allows you to change the terms of your loan with some limitations. If needed, along with the refinance of your home loan, if there is sufficient equity, you can take cash out of your home. Refinancing can:

The Bottom Line is what are your goals?

Assuming both options are available to you, then it boils down to what are your goals. 

First off, there is no harm in testing the refinance waters.  You can lock in an interest rate with minimal information to a Texas home mortgage lender.

You will quickly see the difference from your current principal and interest payment amounts to the new amounts.  You will also see how much the mortgage payment is affected by the term length of the loan. 

Which also plays a factor in your decision.  Is your intent to get the lowest payment possible?  This means refinancing back to a 30-year Texas home loan. Depending on how much in mortgage payment arrears, if any, is included in the mortgage refinance, your new mortgage payment may not be much lower or in some cases higher than your existing mortgage payment. 

If that is the situation, then a Texas home loan modification may be your better option.  The goal with most loan modifications is to reduce your current mortgage payment by no less than 20%, by either lowering your interest rate and/or extending the terms of your mortgage. In some cases, they will take the mortgage arrears and refinance that portion to a balloon payment due at the time of the sale of the home. We offer a free review of your situation to pre-qualify you for a Texas home loan modification.

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