6 Steps To Take For A Successful Mortgage Refinance
If you want to replace your current mortgage loan with a new one that is more advantageous to you, or you need cash for home improvement, then refinancing your home can be your best bet.
Refinancing may take some skills, especially with rising interest rates. Without taking the proper steps, refinancing may not save you a lot of cash or, worse, cost you more.
However, refinancing may offer you some options if you do it right. Such choices include freeing up cash, adjusting your loan terms to a more suitable one, and tapping into your home’s equity. This article will show you if refinancing is right for you and how to apply for it properly.
Refinancing your mortgage is a way of replacing your current home loan with a new one. Often, the latest loan’s terms are different to suit your unique goals. The usual purpose of refinancing is to get a lower loan cost, but there are other reasons for which you can refinance your mortgage.
For instance, you can achieve a lower interest rate if you replace a long-time loan with a shorter time. You may also cash out from your home’s value by refinancing. Furthermore, you may reduce your monthly payments by refinancing your mortgage and for other reasons, which you will learn as you go through this article.
Read through and follow the steps below for a successful mortgage refinance.
When you refinance, there are many options available for you to apply. Be clear on your financial goal, and it will guide you on your path of refinancing.
Suppose your objective is to lower your monthly mortgage; you can make a large principal payment, refinance on the term that reduces your interest rate or select a longer repayment term. Taking one or more of these steps allows you to make a lower monthly payment that you can afford.
Another goal you may target is taking out cash. Refinancing is a great cost-effective way to obtain a loan. Mortgage loans have lower interest rates than other loan interest rates. Credit cards and personal loans are other loans that you may want to borrow, but they charge more interest rates than mortgages.
Furthermore, you can make money on your mortgage by refinancing when interest rates are lower nationally. You can qualify for lower interest rates by improving your credit score, increasing your income, and lowering your debt-to-income ratio.
In addition, you may want to eliminate private mortgage insurance (PMI). Many lenders want you to pay PMI until your equity is up to 20%. When you refinance, you have the chance to add value to your home and, therefore, boost your equity.
These reasons can be why you want to refinance. Determine the one that best suits your purpose and do all that is necessary to qualify for the loan terms which you desire.
Before refinancing, check your credit score. Most mortgage lenders want a minimum credit score of 620. Most lenders consider a credit score of 740 and above to be outstanding.
If you realize your credit score has improved, then you can apply for refinancing at lower interest rates. Reducing your debts and debt-to-income ratio is an excellent way to improve your credit score.
Equity is the difference between your home value and your mortgage. Say your home is worth $100,000, and your mortgage is $60,000. Your home equity is $40,000.
Most lenders will not grant loans that are more than 90% of your home value. A 90% of your home value means a 10% equity. Also, if you borrow with less than 20% equity, you are likely to pay PMI, which is an additional cost.
Make sure you estimate the value of your home and compare it to your debt. It will help you to determine the refinance loan you qualify for. A less than 10% equity means you are not qualified for refinancing, or it will limit your choice of lenders.
When refinancing, get quotes from a few lenders. You can compare interest rates and loan terms with this exploration.
You can check online or ask directly at lenders’ local branches. You can keep working with your current lender or get a new one, depending on whose terms serve your purpose most.
Getting quotes from three or four lenders won’t affect your credit score more than it will if you apply with one lender, mainly if you apply to all these lenders within 14 days. It will only allow you to have options to choose from.
Beware of lenders that advertise low rates. Your credit history may hinder your qualification. Additionally, advertised rates may hide some loan terms. It is best to get quotes and complete loan terms before deciding on the lender to use.
Don’t forget you will have to pay closing costs to refinance just like you did when you bought the house.
Estimate your closing cost and determine if it will be worth it to refinance and act accordingly.
An appraiser is responsible for determining your home value-to-loan ratio. The more your home is valued, the better. Clean everywhere in your home and surrounding. Ensure you are present to ask questions when they assess your home.
If you have taken the above steps, it is time to lock in the refinance rate. Locking in the refinance rate means your quoted rate will remain unchanged even if there is a national rise in interest rate.
Submit the necessary documents and respond to any question asked by lenders as quickly as possible. Doing so will make your loan process go speedily and smoothly.
As soon as your documents check out, your lender picks a closing date. On this date, you will get the refinance loan and become liable for the repayment.