- Before you refinance your mortgage, determine your goals and the type of refinancing you want.
- Find out how much equity you have in your home and what your credit score is.
- Apply for refinancing from multiple lenders so you can compare interest rates and closing costs.
- Find the Best Lenders for Mortgage Refinancing at Insider Tips »
Refinance Your Mortgage can be a great way to save money as well achieve other goals. Some of the steps are the same as when applying for your original mortgage, e.g. B. Submitting documents and going through an assessment. However, many parts of the process are different.
Here are seven tips for managing the refinancing process – and for getting the best possible offer.
When it comes to refinancing, you have different options for term, interest rates and types of mortgages. Your decisions will depend on what you want to get out of the refinancing process.
For example, let’s say you have 10 years on your 30 year mortgage, so you have 20 years left. Your main goal is to set a lower interest rate so that you can save money in the long run.
You could refinance a 20 year mortgage if it comes with a lower interest rate. Or, to save even more money, you could Refinance into a 15 year mortgage. Shorter terms come with lower interest rates, and you pay five years less interest.
Once you understand your goals, you can decide which ones Type of refinancing is best for your situation. Here are your options:
For example, you might have an FHA loan and your goal is to get a lower interest rate – but your home hasn’t gained much equity and your credit isn’t great. In this case, you want one FHA streamlines refinancing.
Your home equity is the relationship between the value of your home and the amount you still owe on your mortgage. If you owe $ 100,000 on your mortgage and your home is worth $ 180,000, you have $ 80,000 in equity.
It is important to know your equity ratio. An easy way to find out is to calculate yours Loan-to-Value Ratioor how much you still owe and how much your home is worth.
To calculate your LTV, divide the amount owed (in this case $ 100,000) by the home value ($ 180,000). You get 0.55 or 55%.
To find your equity, subtract your LTV ratio from 100. If you subtract 55% from 100%, your total is 45%. You have 45% equity in your home.
Many lenders want you to have at least 20% equity, but you may be able to refinance at a lower percentage if you have good credit and a low debt-to-income ratio. There are also different ways to increase your home size before refinancing.
If your credit score has remained stable or improved since you got your first mortgageYou could get a good interest rate.
However, poor credit may not stop you from refinancing. If you have an FHA, VA, or USDA mortgage, you can streamline refinancing into the same type of loan without sacrificing your creditworthiness.
You can, but do not have to, refinance with the same lender that you used for your original mortgage. It’s a good idea to get quotes from three or four companies so you can compare interest rates and closing costs.
When comparing quotation marks, pay attention to the annual percentages (APRs), not just the interest rates. The APR is the interest rate plus the cost of things like rebate points and fees. This number is higher than the interest rate and gives a more accurate representation of what you are actually paying for your new mortgage each year.
Just like when you buy your home, you pay the closing costs when you refinance. Typical refinancing completion costs are 3% to 6% of your capital, after which Federal Reserve. That’s $ 3,000 to $ 6,000 per $ 100,000.
After estimating your closing costs, consider whether refinancing is worthwhile. You may not be able to pay that much at once. If you move in two or three years, you could be spending more on closing costs than you would save on a new plan.
If you decide the refinancing is still worth the cost, budget accordingly.
A refinance appraiser assesses the value of your home so the lender knows your credit-worth-ratio.
The more your home is worth, the better. Before the appraiser’s visit, clean the inside and out and possibly add a coat of paint.
If house values go up in your neighborhood, you can track down the dates and provide a document to the appraiser. Rising house values in the vicinity usually add value to your house.
Understanding and properly preparing all of your refinancing options can help the process go as smoothly as possible. It could also save you money in the long run.
Laura Grace Tarpley is an editor at Personal Finance Insider, specializing in mortgages, refinancing, bank accounts and bank reviews. She is also a certified teacher for personal finance (CEPF). During her four years in the personal finance field, she has written extensively on ways to save, invest, and navigate credit.