Refinancing is very similar to getting your first mortgage loan. You’ll select a lender, a loan type, the term of the new loan and the interest rate. However, it’s your home that is getting refinanced. Consider your long-term goals are and the right time to take advantage of refinancing.
Your Goals
Refinancing can fit your goals by: changing an ARM to a fixed rate mortgage; reducing mortgage payments; decreasing the lifespan of the loan by paying it off more quickly or getting cash from home equity.
Timing
The time you apply for refinancing can make a huge difference in what interest rate you’ll receive. In addition to watching for rates falling, think about:
- How it will affect your goals and lifestyle.
- Required amount of home equity.
- Available cash saved.
- Good credit history.
- Current value of your home.
How To Qualify For Refinancing
To help prepare for refinancing, here’s what lenders will want to know.
Home Appraisal
Refinancing includes getting a home appraisal to check for improvements, what shape its in and the strength of the local home real estate market.
Amount Of Home Equity
Home equity is percentage of the home’s value that you own, calculated by subtracting the amount owed and liens, from the current market value. Equity is also determined by the down payment, principal already paid and increased market value.
Cash Savings
This is cash dedicated to cover your payments, in case you lose your income. A back up fund makes you more attractive to lenders.
Credit Score
Lenders will check your credit score as part of the refinancing process. You might be offered a bigger loan if your score is high. It may also help compensate for having little equity.
Refinancing Costs
You may be able to reduce your closing costs by taking a look at various lender’s refinancing expenses.
Closing Expenses
After applying, you’ll receive a GFE (Good Faith Estimate) of your closing expenses. Typically, the fees and expenses include a credit report and an appraisal. Compare the various lender’s expenses to negotiate to get the costs reduced.
Costs Verses Benefits
Consider the time it will take before your refinancing savings are more than the costs.
Interest Rate
If your refinancing increases the lifespan of your loan, check the total amount of interest you’ll end up paying, even when your new loan has a lower rate.
