The Path to Refinancing your Mortgage
As mortgage rates continue to decrease, many homeowners are considering
refinancing their mortgage, particularly if they originally purchased
their home with an adjustable interest rate.
When considering refinancing your mortgage there are several critical
steps that you should make sure you follow.
First, it is imperative that you make sure you know the value of your
home as well as the current interest rate on your mortgage and your
credit score. It is also a good idea to do some math on your own to
determine whether you will be able to recoup the amount of the closing
costs within a relatively short amount of time. Many homeowners are
often surprised by the amount of documentation that will be required
when refinancing their mortgage loan, so it is important to gather as
much information as you can before you submit your application.
Always make sure that you consider exactly how much money you will be
saving if you refinance your mortgage. What exactly is your current
interest rate and what will the difference be between that interest rate
and a new interest rate? Will the difference be sufficient enough to
allow you to save enough money to warrant refinancing your mortgage?
Keep in mind that a refinance does not come free. There are application
fees and closing costs that you will need to pay when you refinance.
Make sure that you will save enough money to justify those costs.
Understanding the accurate value of your home at the current time is
also critical. Home values have decline significantly in many areas. As
a result, many homeowners have found that they no longer qualify for a
refinance because they simply do not have enough equity in their home.
Even worse, some homeowners have discovered they are actually upside
down on their mortgage loan. The amount of equity that you have in your
home is an important factor in determining the type of refinance that
will be available to you as well as whether you will even qualify for a
refinance at all (Find out
what's your home worth here).
If you do find out that you are upside down on your mortgage, it is
critical to determine exactly what the difference is between the value
of your home and how much you owe on the mortgage. In the event that
your loan exceeds 105% of the property value it is likely that you may
not qualify for a refinance unless you are able to pay a large chunk of
cash upfront.
Inspecting your credit report and score is also another critical step in
refinancing your mortgage. Most lenders today are exercising lending
guidelines that are far stricter than in the past. As a result, it is
always a good idea to ensure you know exactly what is on your credit
report before you apply for a loan. Remember that all consumers qualify
to receive a free copy of their credit report once per year. Take
advantage of that opportunity to avoid surprise later on.
Make sure as well that you shop around for lenders. This process will
take a bit more time but it will certainly be worth it to make sure that
you find the best deal possible, in terms of interest rate as well as
application fees. Possible sources for lenders include national lenders,
local lenders and even credit unions.
When shopping for a new mortgage, make sure that you consider all of the
terms of the loan rather than the interest rate only. Certainly the
interest rate is important, but you also need to take into consideration
the amount of money that you will need to pay in terms of fees and how
that will affect your monthly savings from the refinance.
Finally, make sure that you have all of your paperwork together in
advance of applying for a refinance. While at one time it was possible
to apply for a loan online or over the phone, an increasing number of
lenders are requiring more paperwork as a result of the current lending
crisis. Lenders are looking for copies of tax returns, bank account
statements and proof of earnings now in addition to a current paycheck,
a copy of your W2, retirement accounts and any other applicable assets
which you may have. Making sure that you have all of this information
together in advance in order to avoid time consuming delays later on and
ensure that once you apply your mortgage application goes as smoothly as
possible. If you think there are great benefits to refinancing your home
to take advantage of the low interest rate,
you can
click here to get custom refinancing rate quotes from up to 4 local and nationally-recognized lenders here.
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