Last Updated on September 19, 2024 by Luke Feldbrugge
Saving money on a first responder refinance can be a great help if you know what you are doing. Refinancing is a unique real estate transaction because it doesn’t involve buying a house or selling a house. At face value, it looks like you and your mortgage broker are just shuffling numbers around. At the end of the shuffling, however, your monthly mortgage may be dramatically decreased OR you may have a chunk of money (if it’s a cash out refinance) to use for home improvements.
You may have heard a lot about first responder mortgage programs, such as the Good Neighbor Next Door program (from U.S. Department of Housing and Urban Development), a program to bolster revitalization areas. There is, however, less information out there on refinancing options for first responders.
If you are a first responder — police officer, emergency medical technician or firefighter — how do you decide if refinancing is for you? There are at least two reasons to consider refinancing your home:
- To reduce your monthly payments
- To turn some of your home’s equity into cash for home improvements
Reduced Mortgage Loan Payments/Interest
When interest rates are falling, refinancing is popular. When it’s your first home, if you can reduce your mortgage on your primary residence by even a half point of interest, it can save you money in the short-run, with reduced monthly payments, and in the long-run, with overall less interest owed on your loan for the life of the mortgage.
When interest rates are going up, as they are now, refinancing might not make a lot of sense, but there is still one way a refinance can drop the rates on your loan: refinancing your mortgage from a 30-year loan to a 15-year (or lower) loan. If you do that, the actual monthly payment will not go down and it is likely to go up.
Right now a 30-year mortgage is at 5.7 percent, while a 15-year mortgage is 4.8 percent.
Shifting to a 15-year mortgage is purely a long-term investment. You will save tens of thousands of dollars over the life of the mortgage.
Cash Out First Responder Refinance
If the reduced interest doesn’t interest you, you can also do a cash out refinance. This process allows you to refinance, often at the same rate, and convert some of the equity in your house to cash. This may answer the needs of police officers, emergency medical technicians, and firefighters for two reasons:
- If the current housing market isn’t great for first time new home buyers, maybe you can use the cash out money to finance some significant renovations to your current place and make it closer to your dream space.
- With housing prices escalating dramatically, it means your equity is too. Your house may be worth a lot more than it was just a year ago. That means you may qualify for a bigger payout if you do a cash out refinance.
Cash out refinancing is not just for home improvements. It can also be used to cover medical expenses, emergencies, education and debt consolidation.
Are there drawbacks to a cash out refinance? A few:
- It can extend total loan amount of your mortgage.
- It can affect your credit score negatively
- Closing costs (see below) could take some of the shine off the lump sum of cash
Needless to say, you should talk to your mortgage lender before you pursue a cash out refinance. Homes for Heroes has partnerships with mortgage lenders who help you with a first responder mortgage refinance and they will save you money on the cost of refinance fees. Sign up to speak with our local mortgage refinance specialist to learn more.
Closing Costs
When you look into refinancing, the first obstacle you will run into is closing costs. You will need to pay closing costs for a refinance, and they range from 2 to 4 percent of the loan’s balance. That means that on a $250,000 mortgage, you could expect to pay between $5,000 and $10,000.
What fees can be included in the closing costs? Well, there are a lot of them. The following is a list of some of the costs factored into closing costs:
- Application fee
- Document fee
- Origination fee
- Recording fee
- Attorney fee
- Survey fee
- Title search fee
- Title companies insurance fee
- Appraisal fee
- Home inspection fee
- Flood certification fee
Not every refinance will involve all of these fees. What you end up paying will depend on your lender and the unique circumstances surrounding your property and loan type.
Our local mortgage specialist can save you some money on the cost of these fees when you work with them to close on your first responder refinance. Sign up today to speak with our local mortgage refinance specialist to learn more.
At $5-10K, closing costs can be a substantial barrier. If you are doing a cash out refinance in order to acquire some funds, paying this amount of money to get the funds may make you think again. There are, however, a couple of options to lower the upfront cost of a refinance.
If the numbers work, the lender can roll your closing costs into the new loan. That could remove the intimidation factor of the up-front cost of the refinance for eligible borrowers. Just remember: those closing costs will be added to your mortgage and you will be paying interest on them, in addition to the mortgage, for the life of the loan. Again, it’s a matter of balancing short-term convenience versus long-term costs.
Another way to reduce closing costs is to directly ask your lender if they have any discounts for first responders. Many of them do but don’t really advertise the discounts, so the only way to know about them is to ask. They may not even list them on their website.
If you are a first responder with a military background, you can also use VA home loans to refinance you current loan (and forego private mortgage insurance) and convert it to a VA loan. Even though the program is designed to help with down payment assistance, You can even do that with the cash out refinance.
Likewise with an fha loan (Federal Housing Administration). You can refinance these loans to give you options such as:
- FHA simple refinances allows you to swap your FHA loans for new FHA loans with either fixed or adjustable interest rates. The simple refinance does not have a cash-out option.
- FHA cash-out refinances will let you take out a loan for more than you owe on your current mortgage, pay off the original loan and then keep the difference. You can use the cash for any expense.
- FHA 203(k) refinances act as rehab loans for renovation and repair costs. It rolls it all into a single mortgage.
Finally, keep your eye on The Helper Act. It may reveal lots of VA-like benefits for first responders in the future. The House of Representatives is currently discussing the bill.
Closing Day is Document Day
When closing day comes, you will need to sign a number of loan documents. The exact documents you sign will depend on the type of refinancing you get. Your lending specialist should walk you through the closing process. Refinance documents that you need to bring often include:
- Final version of the closing disclosure statement
- Your mortgage or deed of trust
- Promissory note
- Your right to cancel
To make sure you don’t miss anything important, here’s a checklist of all the documents you’ll likely need to sign during the refinance closing procedures for either a refinance or a home purchase:
Download the Homes for Heroes mortgage closing document checklist
As you go through the refinance closing process, remember that you can take all the time you need to review documents. Don’t let yourself be rushed into signing something you don’t fully understand. Ask questions so you can feel confident about your decision.
Homes for Heroes Saving Opportunity
When it comes to providing first responder home refinance, Homes for Heroes has been helping community heroes become first time homebuyers for more than 20 years.
If you register with Homes for Heroes, you’ll be automatically matched with both real estate agents and mortgage specialists at a local level who can help you save on all the costs associated with refinancing your home. They will be your dedicated lending partner, helping you navigate the refinancing process and save you money. They also reduce their fees for first responders – law enforcement officers, EMS professionals and firefighters – looking to refinance their mortgages. This program is free, easy, and most importantly saves you money on refinancing.
Ready to refinance your home and save money in the process? Sign up with Homes for Heroes for more information and let our mortgage specialists put their expertise to work for you.
