Need to Refinance? Find the Best Mortgage Lenders: 10 Tips and Tricks
If you are thinking about refinancing your mortgage to a lower rate, then you are probably looking forward to saving money on your monthly payments. You can also go through the refinancing process to tap into the equity in your home to finance home improvements while also consolidating other debts. At the same time, this is a big decision and you need to work with the best mortgage lenders to get a new home loan that is favorable to your financial situation. When it comes to refinancing your first mortgage, there are a few tips to follow.
1. When Is a Good Time to Refinance Your Mortgage?
While saving money on your home loan sounds great, you need to pick the right time to do so. First, many lenders will not let you refinance your mortgage until you are several years into your first mortgage. This is because you do not have enough equity built up in your home to make refinancing worth it.
Once you have some equity built up in your home, refinancing becomes a more viable option. In general, if you can reduce the interest rate on your home loan by at least two percent, then it is worth it to take a closer look at refinancing. Make sure that you look at all the numbers before making this decision.
2. How Will Rates Impact Your Monthly Payment and Total Costs?
When you go through the refinancing process, you need to make sure that you run the numbers and understand how your new loan is going to impact not only your monthly payment but also your total costs. While refinancing to a lower interest rate is great, there are other costs that come with owning a home. This includes real estate taxes, homeowner’s insurance, and the closing costs that will accompany the refinancing process. Make sure that you consider all aspects of the refinancing process.
3. Tricks to Avoid While Refinancing
When you go through the refinancing process, you need to be aware of a few common tricks that could trip you up. First, check the value of your property. The value of your home will impact your home loan. Second, always comparison shop. Do not get lured in by an attractive refinancing rate because there might be a better one out there. Finally, do not assume that fees are non-negotiable. Everything is negotiable when looking for a home loan.
4. Know the Common Fees While Shopping for a Refinance
You also need to ensure that you are aware of some of the common fees that you might have to pay. These include points due at signing, origination fees, application fees, insurance fees, title searches, and more. These fees are negotiable, so always ask to see every attached fee and see if they can be waived.
5. Before Closing You Will Need to Include the Following:
Before you close on your refinancing, you need to make sure that you have all the required items. These include:
- Proper identification such as a passport or a driver’s license
- A cashier’s check that you can use to cover your closing costs
- Your closing disclosure, which is used to double-check the paperwork
When you work with the best mortgage lenders in the local area, they will help you with these steps.
6. Always Specify the Goals of the Refinance
When you go through the refinancing process, you must know your goals. These might include reducing your interest rate, shortening the term of your loan, switching to a fixed-rate mortgage, or tapping into your equity. A strong local lender can help you align your refinancing process with your goals to set you up for success in the future. That way, you can ensure that you are happy with the result.
7. Always Check Your Credit Score
While refinancing might sound nice, you need to make sure that you qualify. When you refinance, you are taking out a home loan. Therefore, your credit score is going to matter. Always check your credit score and make sure that there are not any mistakes on your report. This might prevent you from getting the rate you deserve. Do not make the mistake of forgetting to check your credit score.
8. Analyze Your Debt to Income Ratio
Your debt to income ratio will play a role in the success of your refinancing process. If your debt to income ratio is too high, then you might not qualify for a refinance. A good rule of thumb is to keep your debt to income ratio below 45 percent. This will keep you in a solid position, allowing you to negotiate for a more competitive interest rate.
9. Get Ready for a Home Appraisal
When you go through the refinancing process, your lender is going to need to assess the current market value of your home. Remember that your home is going to act as the collateral for your mortgage and the value of your home must be able to justify the amount of the loan. Always be present during the appraisal to answer any questions. If you are working on any home improvement projects, finish them before the appraisal. This will help you get the best appraisal possible.
10. Lock the Mortgage Rate
If you receive a mortgage rate that you like, then lock it in. A good local lender is willing to do this for you. That way, your mortgage rate is held for at least thirty days, preventing it from going up as the closing process unfolds.
Following these tips will help you place your refinancing process in a position to be successful. When you go through the refinancing process, you can reduce your monthly payments, shorten your home loan, or tap into the equity in your home. Make sure that you work with an experienced local lender who will place you in a position to be successful.