Although all real estate loans are financed along the same guidelines there are some differences in purchase money loans and refinance loans.Many times a person can purchase a home with one loan program with the direct intent to refinance after a handful of months. Several factors can play into such a scenario, such as a flow of income to be provided after the purchase, or credit repairs, or the value of the home raising quickly, etc...However, most companies require that the initial mortgage be 'seasoned' for a set amount of months before a new refinance is allowed.
In most cases, a refinance to replace the current mortgage with one with a shorter term or a lower interest rate has the same underwriting requirements as a purchase loan. For instance, refinancing a current 30 year mortgage with a 15 year mortgage is often treated the same a purchase money mortgage. On the other hand, a Cash-Out refinance in which the home owner withdraws from the equity built in the house has somewhat stricter qualification threshold.
Ironically some lenders will create a purchase as a refi, if you are in a lease option and have 12 months cancelled checks, you can potentially "refinance" the property based on appraised value and get a lower loan to value.
Some lenders will offer enhancements to the interest rate for new home purchases and higher down payments.
One of the biggest differences is there maybe loan to value reduction if you are planning to take money out on a refinance.
When you refinance their is a 3 day right of rescission period. Where as on a purchase, the transaction will fund that day.
When a homeowner is looking to do a refinance transaction, the lender is required to make sure that the loan has a "net tangible benefit" to the borrower.
An example of a "net tangible benefit" would be when the borrower is taking cash-out to pay off high interest rate credit cards and lowering their monthly obligations.
Many lenders will place purchase transaction loan files ahead of refinances in their underwriting departments. This is because purchases are often much more time sensitive and frequently must adhere to a specific closing date. In a refinance transaction, although the borrower often feels time constraints, closing the loan a few days late usually does not present any hardships.
Refinancing today has become an incredibly fast and easy process compared to the first time you purchased a home.
With a refinance loan you may take cash out, if you have the equity available, lenders won't allow cash out on a purchase.
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