It’s a good idea to know the various benefits and drawbacks of refinancing your mortgage before deciding what to do. For example, refinancing your mortgage can give you more flexibility with repayments and lower interest rates. However, it can also cost you more money in fees or lower your credit rating or home equity if you’re not careful. If you move forward with your plans, here are some tips for how successfully refinance your mortgage:
1. Know your credit score
If you want to know whether you qualify for refinancing, one of the first things you need to do is check your credit score. This number will depend on various factors, such as the amount of debt you have and how much time has passed since charges were last made on your credit card. Depending on how well you manage your finances, you could be eligible for refinancing with a much lower interest rate.
2. Get quotes from multiple lenders
If you have a good credit score, you should be able to get multiple quotes from different mortgage lenders. There can be significant differences between each lender, so it is important to look at the details of the actual loan offer before deciding. The most important thing is to find out precisely what each loan would cost per month and calculate the total monthly interest you will pay over the loan duration.
3. Know your home’s equity
Before you decide on a particular loan and interest rate, it is essential to determine your home’s value. You can do this by getting a list of your outstanding loans and paying them off in full before you make an offer on another property. Then, it is advisable to calculate the difference between the equity you have now and how much equity you will have when that property is sold.
4. Know your debt-to-income ratio
Credit scoring can be hard to understand, and many factors play into your credit score, including your debt-to-income ratio. This number is calculated by looking at both your monthly income and your expenses. As such, while you can calculate the amount of debt on your home, it is also essential to keep track of how much debt you have overall so you can get an idea of your debt-to-income ratio and your credit score.
5. Respond to lender inquiries quickly
If you are ready to refinance your home, make sure you respond quickly to any questions from the lender. They might ask for documentation, including your income tax return and a copy of your most recent statement. It’s important to get the paperwork back to them as quickly as you can.
6. Prep your home for appraisal success
Make sure to clean up your home inside and out. This will help make the appraisal process easier for you and the appraiser, especially if the appraiser will be taking photos of your home. Also, provide your current lender a list of recent repairs that have been done on your home (e.g., new roof, remodeled kitchen, etc.). This will all factor into the home appraisal.
7. Build a down payment
If you are a first time home buyer, the seller usually requires a considerable down payment up front. Generally, this is around 20% of the total cost of the property you want to buy. This down payment can be built from your savings, or may be obtained via a family member or friend’s loan.
In conclusion, refinancing your current mortgage is a good idea if you want to lower your interest rates or get a better loan. If this is your wish, consider the above tips to help refinance your mortgage.
