Are you thinking about refinancing your mortgage? Refinancing is a great way to save money on your monthly payment, shorten the term of your loan, or tap into the equity of your home for a home improvement project or other major expense. At the same time, refinancing is like taking out a new home loan. For this reason, you need to know what to expect. There are a few tips that you should follow to make it easier for you to refinance successfully.
Know the Equity of Your Home
One of the first things that you must know if you want the refinancing process to proceed smoothly is the equity in your home. If you do not have enough equity in your home, you might not be allowed to refinance your home loan. Therefore, you need to look at your first mortgage, look at your home's equity, and see if refinancing is an option for you. An experienced local lender can help you look at your first mortgage and let you know if a refinance is a smart move for you.
Know Your Credit Score in Advance
When you went through this process the first time, you had to go through a credit check. When you refinance, this is like taking out another home loan. Therefore, a credit check is going to be a part of this process. If you want to qualify for the lowest interest rates possible, you need to have a credit score that is as high as possible. Make sure that you ask for your free annual credit report so that you can clear up any mistakes on your credit before you apply for a home loan.
Learn how to monitor and order your free credit report here.
Organize Your Paperwork Ahead of Time
If you want the refinancing process to proceed as smoothly as possible, you need to make sure you get organized. Remember that there is a lot of paperwork that you were going to have to take care of when you are looking to go through the refinancing process. This includes bank statements, pay stubs, investment accounts, retirement accounts, verifications of other sources of income, and your first mortgage. If you come prepared with all this information ahead of time, then this will demonstrate to the lender that you are organized and ready to go. This will increase your chances of being approved for a refinance.
Consolidate Your Debts
In addition, you need to make sure that you pay off as much of your debt as possible. Remember that every lender is going to take a close look at your debt to income ratio. If you can pay down your debts before applying for a refinance, then this will increase your chances of being approved. Some of the common sources of debt that people have when they refinance include car payments, credit card debt, and student loans.
Understand the Balancing Act Between the Rate and the Term
When you refinance, there is going to be a balancing act that takes place between the rate and the term. While most borrowers will focus on the interest rate, you also want to think about the term of the loan. For example, if you want to minimize the amount of interest that you will pay over the life of the loan, then you want to have a loan that has the shortest term possible. At the same time, if you shorten the term, your monthly payments are going to be higher because you will end up paying the loan off more quickly. A local expert can walk you through your options and help you determine the best mortgage for you.
Understand the Costs of Refinancing
In addition, you also need to think about the costs that are going to go along with refinancing a loan. Remember that there were closing costs that accompanied your first mortgage as well. Usually, the cost of refinancing a home loan will be between 3 to 5 percent of the total loan amount. If you have enough equity, you might be able to wrap the refinancing costs into the new loan. Be wary of lenders who offer a no-cost refinance program. In exchange for reducing these costs, they are usually going to raise your interest rate.
Always Work with a Local Lender
If you want your refinance to proceed as smoothly as possible, you need to work with a mortgage in your local area. When you pair with a local lender, you will have someone accountable to you. He or she will help you through this process every step of the way, ensuring that your goals are understood. Remember that there are a lot of options when it comes to refinancing your mortgage. If you need to tap into your home's equity, then a local lender can help you do this. If you are looking to pay off your home loan more quickly, then a local lender can help you do this as well.
Work with a Local Lender to Find a Better Mortgage
These are a few of the most important tips you should follow to make sure that you get the best home loan for yourself and your family. By working with a local lender to find a better mortgage, you will partner with an experienced guide who will place you in the best position possible to be successful. Don't forget; they'll be there for you after your loan closes.
