Which Bank Is Best For Refinancing?

    Which Bank Is Best For Refinancing: Our Top 7 Lenders

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    With the coronavirus pandemic still looming overhead, it may seem like an odd time to refinance your home. However, with interest rates hitting historic lows last year, the market is ripe for picking. 

    How does one even begin to find the best mortgage refinance lenders? Here, we provide you with everything you need to know about refinancing a mortgage – plus a list of some of the best banks for refinancing. 

    Understanding Mortgage Refinancing 

    What exactly does it mean to refinance a mortgage? A refinance, also known as a "refi," is the process of taking out a new loan so you can pay off an existing home loan. The most common reason people get a refi is that they want to pay less in interest and/or monthly payments. 

    Interest rates fluctuate all the time due to certain market changes. Last year, for example, mortgage rates dipped because of the coronavirus pandemic – resulting in a 21 percent spike in home sales. In some cases, people also get a refi to shorten the length of their mortgages, and thus build equity faster and pay less in interest in the long run. 

    Another reason people refinance loans is so that they can consolidate their debts. So if, for instance, you have several forms of credit with high-interest rates, you can get a refi to instantly pay off all those loans and end up with a single loan with lower interest. 

    Refinancing is not without risks, however. When you get a refi, you have to take into account the additional fees that come with taking out a loan. Application and loan origination fees, appraisal fees, attorney's fees, title and homeowners insurance, mortgage points, and property taxes are just some of the costs you'll have to consider when refinancing a home. In general, you may pay between 3 to 6 percent of your principal in closing costs in a refinance.

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    Pros

    • Refinancing lets you lower your monthly payments and interest rate, potentially saving you hundreds of dollars each year. 
    • With a refi, you can shorten the life of the loan you currently have, meaning you can potentially save more on interest over time.
    • If your goal is to consolidate your debts, refinancing allows you to have a cash supply which you can use to pay off any immediate financial obligations.

    Cons

    • Refinancing a home loan can help you save on interest, but watch out for those closing costs – they can cost you up to 6 percent of your principal loan amount. 
    • If you refinance from a shorter to a longer loan term, you may end up paying more in interest. On the other hand, if you shorten your loan, you could end up paying more in monthly payments. There’s always a tradeoff, so make sure you’re prepared for the costs. 

    Are There Different Types Of Mortgage Refinances? 

    There is more than one way to refinance a loan. Here are some of your options: 

    Traditional or Rate-And-Term Refinancing

    The most common kind of refinancing, rate-and-term refinancing is when a current mortgage is paid up with a brand new loan with better rates and/or terms. With this option, you can opt to get a lower rate, a shorter term, or both. 

    Conventional mortgages, VA mortgages, FHA loans, and USDA loans are all eligible for traditional refinancing. 

    Cash-In Refinancing

    In most cases, lenders require borrowers to have at least 20 percent home equity or a loan-to-value ratio of 80 percent or less. If you're not there yet, however, you can still opt for a cash-in refi. With this option, you pay a large amount toward your principal so you can lower your LTV. 

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    Cash-Out Refinancing

    A cash-out refi is essentially the opposite of the cash-in option. If you've got enough home equity, you can take out a loan that is higher than what you have left to pay, then withdraw the excess (your home's gained value) in cash. 

    No-Closing-Cost Refinancing

    As mentioned, closing costs can amount to 3 to 6 percent of the principal. If you're getting a refi because you want to get your finances in order, this can set you back hundreds of dollars. 

    Some refinance lenders let borrowers skip the fees at closing, making it easier on the wallet in the beginning. But do keep in mind that, in most cases, your closing cost isn't being waived – it's just being delayed. You'll likely have to roll your closing costs into your monthly payments or interest.

    What Do You Need To Qualify For A Refinance? 

    Each lender will have a different set of requirements for their borrowers. But generally, you'll need the following to qualify for a refinance:

    • Maintained original mortgage: Lenders require proof that you’ve managed to pay your original mortgage for at least a year. 
    • Home equity: Home equity is the value of your home minus what you owe your mortgage lender. Technically, it’s how much you’ve paid on your mortgage relative to the home’s appraised value. In most cases, you’ll need at least 10 to 20 percent equity before you can get a new mortgage.
    • Good Debt-to-Income ratio: Lenders need to make sure their borrowers will be able to pay them off on time – for this, they look at whether you have a regular source of income and if you have a decent debt-to-income ratio. Most lenders have a cap of 40 percent DTI.
    • Decent credit score: Your credit score is a number that represents your ability to pay bills and debts on time. The higher your credit score, the more trustworthy you are to a lender, and thus the better your chances are to lower your interest rate. 

    Aside from getting you a lower interest rate, your credit score will also affect the refinance rate you receive from lenders. To get a good refinance rate, make sure you have a credit score of at least 620. 

    If you want to improve your credit score, make sure to pay your bills on time, don't be late to pay your utility payments and phone bills, keep debts at a minimum, and don't open too many credit cards. It can take a while to rebuild a bad credit score, so always err on the side of caution.

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    What Are The Costs Involved In Refinancing? 

    When preparing to refinance your mortgage, don't forget to compute the following types of fees:

    Lender Fees

    This includes the application fees and origination costs, which cover all administrative charges. Your lender could also offer you discount or mortgage points, which are a form of "prepaid interest" that you can pay upfront to lower your monthly payments. These fees are more or less negotiable, amounting to 1 to 3 percent of the loan principal.

    Third-Party Fees

    This includes the cost of appraising and inspecting your home, attorney fees, title search, and title insurance. Generally, you can't purchase or refi a home without purchasing title insurance, as this protects homeowners from future property claims. Third-party fees can set you back about $1,500 to $3,000.

    Government Fees

    Government fees include transfer fees and property taxes. Government fees are non-negotiable. 

    How To Choose A Mortgage Refinance Lender

    When we assessed mortgage lenders for this list, we prioritized five factors. Here's what you should look into when shopping for a refi lender:

    Loan Types Offered 

    There are several different types of loans, including a conventional mortgage, fixed-rate mortgage, adjustable-rate mortgage (ARM), and government loans. Each one has its own set of pros and cons.

    Loans that are backed by private lenders fall into two categories: conforming loans, which do not exceed the maximum borrowing limits; and non-conforming or jumbo loans, which go beyond the limit of $548,250 (or up to $822,375 in Hawaii, Alaska, and high-cost markets). 

    Fixed-rate mortgages are loans in which the mortgage interest rates remain the same throughout the lifetime of the loan. While this is good if you want consistency month after month, it can lead you to pay more in the long run. ARMs, on the other hand, have a fixed mortgage interest rate for an initial period. The interest rate then fluctuates each year after.

    Finally, there are three types of government-backed loans: Federal Housing Administration (FHA) loans, Department of Veterans Affairs (VA) loans, and Department of Agriculture (USDA) loans. Government-backed loans are usually designed for low-income, first-time homebuyers who have low credit scores and not enough money to pay the standard 20 percent down. 

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    Affordability

    Mortgage refinance rates fluctuate all the time, so it's difficult to give an absolute figure in terms of what's affordable and what's not. So instead of looking at refinancing rates, we look at how easy it is for people – even those with limited budgets – to purchase a loan from a lender to assess affordability.

    Traditionally, lenders expect a 20 percent down payment for most loans. However, some lenders are willing to accept as low as 3 percent down (sometimes at the cost of adding private mortgage insurance). 

    There are also other financial factors to take into consideration: minimum credit score requirements, debt-to-income ratio requirements, and lender fees. 

    Application Process

    With the coronavirus pandemic still ongoing, it's imperative you find a lender who can make the application process as fast, simple, and socially distant as possible. Your best bet would be a lender who provides a completely online application process.

    Customer Service And Satisfaction

    A mortgage is a long-term commitment. You'll want to work with a lender who can take care of you for many years. As such, we put a premium on lenders who have excellent customer service ratings from JD Power and the Better Business Bureau.

    JD Power is a marketing firm that specializes in data analytics. In 2020, they released an overall customer satisfaction index ranking from their U.S. Primary Mortgage Origination Satisfaction Study. We consulted with this list in putting together our own list of the best banks for refinancing.

    The Better Business Bureau, on the other hand, is an agency that assesses businesses' complaint histories, advertising issues, licensing and government actions, and transparency in business practices. With this, they rate companies' trustworthiness with a rating from A+ to F.

    Availability

    Finally, don't forget to look into a lender's availability. Make sure they originate loans where you plan to live. 

    Our Top 7 Best Mortgage Refinance Companies

    Here are our top picks for the best mortgage refinance options in 2021:

    1. Rocket Mortgage by Quicken Loans: Best Overall

    Why it made our list: When it comes to customer service, Rocket Mortgage by Quicken Loans is unparalleled. They've got the top spot on JD Power's Overall Customer Satisfaction Index and an A+ rating from the Better Business Bureau. Aside from this, the mortgage and refinance lender offers a fully online application process, flexible customer service hours, and low-interest rates.

    Quicken Loans offers conventional, FHA, VA, jumbo, fixed-rate, and adjustable-rate mortgages. Quicken Loans does not offer home equity loans, HELOCs, or USDA loans.

    Pros: Rocket Mortgage has excellent customer service, a fully online application, and is available in all 50 states.

    Cons: Despite being one of the best mortgage refinance lenders, Quicken Loans does not have the most diverse product lineup – lacking USDA and home loans, as well as HELOCs.

    Minimum down payment: 3%

    Min credit score: 620

    JD Power Ranking: 1st. Score of 883/1000

    BBB Rating: A+

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    2. Bank of America: Easiest Application

    Why it made our list: Bank of America offers a range of loan options, including fixed-rate loans, ARMs, FHA loans, VA loans, HELOCs, and two affordable home loan programs for low-income and first-time homebuyers.

    Aside from these, Bank of America offers a breezy application process that can be done from the comfort of your own phone or computer.

    Pros: Bank of America offers a variety of mortgage products (including affordable solutions for first-time buyers) and has an excellent application process that can be done 100% online.

    Cons: Mortgage fees are not disclosed on the website. Bank of America does not offer USDA loans as well.

    Minimum down payment: 3%

    Min credit score: 620

    JD Power Ranking: 2nd, tied with Chase. 860/1000

    BBB Rating: A+

    3. Chase Bank: Best For Beginners

    Why it made our list: Tied with Bank of America on JD Power's survey, Chase has many of the same advantages – a variety of home loans, an affordable option for first-time homebuyers, and impressive customer service with a 24/7 hotline to boot.

    Chase does lag behind its counterpart in a few ways, though. Firstly, Chase's application process isn't 100 percent online – applicants still have to call or meet up with a loan officer to finalize a loan. To make matters more difficult, there are limited brick-and-mortar locations, even though Chase originates loans all over the US.

    Pros: The DreaMaker mortgage program is perfect for first-time buyers and those on a tight budget.

    Cons: The application process could be better, especially now that COVID restrictions have made it difficult to do things in person.

    Minimum down payment: 3 percent

    Min credit score: 620

    JD Power Ranking: 2nd, tied with Bank of America. 860/1000

    BBB Rating: A+

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    4. Guild Mortgage: Best Refinance Option For Those With Low Credit

    Why it made our list: Guild is one of the few mortgage lenders that offer loans and refinancing to homebuyers with less than the average 620 credit score. Their minimum credit score requirement is 600.

    Guild offers a variety of loan types, including conventional, FHA, VA, USDA, fixed-rate mortgage, adjustable-rate mortgage, and jumbo loan options. They also offer an MH Advantage program for homebuyers purchasing manufactured homes, and a StrongStart program for new constructions.

    In terms of refinancing, Guild offers the following: rate-and-term refinance, cash-out refinance, and reverse mortgages. Guild does not offer HELOCs.

    Pros: Guild Mortgage gives homebuyers the option to apply either in person or online. They also have a 17-day closing guarantee through the Homebuyer Express option.

    Cons: Unfortunately, Guild does not disclose mortgage rates online. They have limited locations, with offices in only 31 states. You also can't apply online if you live in New York or New Jersey.

    Minimum down payment: 3.5%

    Min credit score: 600

    JD Power Ranking: N/A

    BBB Rating: N/A

    5. Fairway Independent Mortgage Corporation: Best Selection of Loan Products

    Why it made our list: Fairway is an underrated mortgage lender based in Madison, Wisconsin that boasts a large selection of loan options, including conventional loans, adjustable-rate mortgages, fixed-rate loans, jumbo loans, reverse mortgages, renovations, and government-backed loans like FHA, VA, USDA loans.

    Fairway offers a variety of term options, from 10, 15, 20, 25, to 30-year fixed-rate mortgage terms and 5/1, 5/5, 7/1, 10/1, and 15/1 adjustable-rate mortgage terms. 

    You can also get renovation loans from Fairway, including Choice Renovation, HomeStyle, FHA, VA, and jumbo renovation loans. When it comes to refinancing, Fairway offers cash-out refinance plus ARM to Fixed-rate mortgage refinancing and vice versa.

    Applying is fairly easy at Fairway. Using their mobile app, FairwayNow, you can get in touch with a real estate agent, upload documents, compute payments, track your loan's progress, and get approval.

    Pros: Fairway offers a solid lineup of loan types for all needs. Their mobile app makes it easy to start applications, track one's progress, upload documents, and the like.

    Cons: Perhaps one reason Fairway doesn't make a lot of best-of lists is the lack of online information on the lender and minimum credit score requirements. Additionally, the lender expects a higher minimum down payment than most of its competitors.

    Minimum down payment: 5%

    Min credit score: Undisclosed

    JD Power Ranking: N/A

    BBB Rating: A+

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    6. Veterans United Home Loans: Best Refinance Options For VA Loans

    Why it made our list: Backed by the United States Department of Veterans Affairs, Veterans United is considered one of the best mortgage refinance companies for VA mortgages.

    One of their main selling points is convenience – Veterans United lets homebuyers start and complete a loan application entirely online. They also have a 24/7 customer service hotline, meaning you can contact them for questions and concerns whenever it's most convenient for you.

    Even if you don't have a military background, you can still apply to Veterans United, as the lender offers conventional mortgages, USDA loans, FHA loans, and mortgage refinancing as well.

    Pros: For immediate concerns, you can contact Veterans United anytime through their 24/7 hotline.

    Cons: While Veterans United originates loans in all 50 states, you may be hard-pressed to find a brick-and-mortar branch near you as the lender only has locations in 18 states.

    Minimum down payment: 0%

    Min credit score: 640

    JD Power Ranking: 873 /1000

    BBB Rating: A+

    7. Navy Federal Credit Union: Best Incentives For Members

    Why it made our list: Founded in 1933, the Navy Federal Credit Union is another major lender that specializes in loans for active-duty military members, veterans, and their families.

    Navy Federal offers special incentives for military members, including a RealtyPlus too which provides cashback upon closing, a rate-match guarantee, and a mortgage rate relock option.

    Navy Federal offers the following mortgage products: conventional, fixed-rate, adjustable-rate, Military Choice, Homebuyers Choice, VA mortgages, and home equity loans. They also offer rate-and-term refinance and cash-out refinance options.

    Pros: Incentives for members, no underwriting fees, no mortgage rate relock fees, no minimum down payment and private mortgage insurance.

    Cons: You have to be a member to avail of the benefits.

    Minimum down payment: 0%

    Min credit score: 620

    JD Power Ranking: 867

    BBB Rating: A+

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    When Is The Right Time To Refinance Your Mortgage?

    Refinancing a mortgage is a smart financial move when done right. You should consider refinancing when:

    • You're planning on staying in your home for a long time. In this case, you could save a considerable amount of money on your monthly payment by going for a lower rate.
    • You want to access your home's equity, or the value of your home that you already own. If you've paid a substantial amount on your existing mortgage and want to access that money for additional funds, you can take a cash-out refinance. Cash-out refinancing is especially helpful in emergency situations or if you want to make a large purchase.
    • Your mortgage is over 15 years. You don't want to be spending your whole adult life making a monthly payment on your mortgage. If you feel like your original mortgage is way too long (e.g. a 30-year fixed-rate loan), a new mortgage could help you shorten the life of the loan – helping you pay less in the long run.
    • You want to convert your current mortgage from an ARM to a fixed interest rate mortgage, or vice versa.
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    The Bottom Line

    Refinancing a mortgage can help you shorten your loan, adjust your monthly payment and/or interest rates, save money, and generally make your life easier than before. But as with any big decision refinancing your mortgage requires a lot of research and careful planning. 

    To find the best mortgage refinance companies, you need to look at the following factors: the loan types they offer, their application processes, their requirements, customer satisfaction ratings, and finally, their availability.

    If you want to learn more about mortgage products, refinance rates, and mortgage lenders, head over to our blog. We make it our mission to bring financial literacy to more people, so we've got loads of reviews and guides to help!

    Written By Ed Wallace
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