Would you like to refinance your home? Although many people see refinancing a mortgage as a benefit, there are other things that you should consider as well. Remember that mortgage refinancing is not only about getting a lower monthly payment.
Refinancing Step by Step
So, you are considering a mortgage refinance. Have you thought about everything that is involved? What are your reasons for wanting to refinance your home? Do you want to cash out some of the equity in your home and take a long awaited vacation, pay for a wedding or college tuition? Or, maybe you need to refinance just to get a lower interest rate on your loan.
With these economic times, you just want to catch your breath and pay a lower monthly payment. Whatever your reason may be, hopefully this article will provide the proper guidance and help you to successfully refinance your home.
Check Your Credit
Credit is important when applying for any loan. Before you begin the application process or even speak with mortgage lenders you should make sure that you have decent credit. In order to qualify for a mortgage refinance, you will need a credit score of at least 740 if you want a low interest rate. After all, isn’t acquiring a low interest rate the main reason that people get mortgage refinances?
Although you could still refinance your home with a score as low as 680, the interest rate will not be as appealing. If you discover that your credit score isn’t as high as you wish, start going through the process of getting it cleaned up. One way to do this is to check your free credit report to see if their are any black marks on it that are not legitimate.
Determine Your Home’s Value
Find out how much your home is worth. Also calculate your loan to value ratio because if it does not meet the lender’s requirements, you will not qualify for for a mortgage refinance. This will mean that you have to pay more down on the loan before you qualify.
MLR’s Note: The most accurate way to do this is to divide your loan balance by your house’s value. Obviously the value of the house is very important, so lean towards using an appraiser as opposed to trusting Zillow.
Get Your Documents in Order
Get all of the documents that you will need in order to close on a mortgage. These will include papers such as your W-2 stubs, tax forms, bank statements and credit card statements. You should also include copies of your credit reports from all 3 credit bureaus.
Your lender will need these documents in order to determine your credit worthiness.
Shop Around for Lenders
Shop around online and offline for the best lenders. Let everyone know that you are shopping for a good deal. You should speak with your current lender first. Give that lender a chance to keep your business.
Many times a current lender will be willing to give you a good deal if you have been a good paying customer. However, don’t stop there continue to shop around and compare the loans of other possible lenders as well.
Refinance Remaining Years on Loan
Once you have decided upon a lender and loan, take out a new loan and refinance for the same amount of years that were remaining on your old loan. If you are financially able to do so, do not take out another 30 year home mortgage. In error, people will refinance their home mortgages when they have about 15 years left on their loans. They do this thinking that they are saving money. In actuality, you are starting the whole process all over again and it will take you longer to pay off another 30 year loan.
So, do not refinance for another 30 year mortgage if you can avoid it.
Is it that Simple?
All in all, refinancing a mortgage is a good thing.
Well, it is a good thing if you qualify, do the right preparation, shop around for a good deal and refinance for the proper terms. Spend some time and handle things properly. This will ensure that your mortgage finance will be successful.
I'm MLR. After graduating from college debt free, I decided to write a blog encouraging people to adapt responsible and sensible personal finance rules.
January 20th, 2011 at 7:44 am |
Personally, I think the ‘Determining Home Value’ should come first. Or at the very least, perhaps a ‘Do Some Estimating’ category would be in order as the first thing to do. Using Bankrate and plugging in values should give you a good idea what you would need to plan for closing costs, what other funds you might need to bring to closing (for example, if maintaining a 20% threshold of equity is important, you may need to infuse some cash depending on how much your home value has fallen). Doing this would give you a pretty good gut check of whether it’s even feasible to go through the process.
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MyLifeROI Reply:
February 2nd, 2011 at 11:08 pm |
@Money Beagle,
Very good tips. When I went through the process recently, I used a lot of closing costs calculators as a gut check. As I got closer to the process (where I was getting pre-approved for a mortgage), I look up all of the applicable local laws to actually calculate a very close guesstimate to what I would need to close.
I got within a few hundred dollars, and it didn’t upset my budget at all!
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