With the housing market showing no signs of slowing down, now’s the perfect time to start looking into refinancing your mortgage. Not only can it save you money on interest and monthly payments, but refinancing can also provide you with a new home loan with more favorable terms and lower monthly payments, as well as some other advantages that make home refinancing worth considering if you’re in the market for a new home loan. Here’s how to get started with home refinancing!
What you need to know about home refinancing
Take a look at your monthly statement. Are you paying more than you’d like on interest and principal? If so, it might be time for a home refinance. But how do you know if now is a good time? Or if refinancing is even right for you? Should I refinance my mortgage? That’s one of the questions that often comes up when considering what can seem like an incredibly daunting financial decision. To answer those questions, let’s take a look at why you might want to consider refinancing in general, some helpful steps on how to go about it, and most importantly… should I refinance my mortgage?
Compare your home refinancing options
So, you’ve thought long and hard about refinancing your home. The good news is that it’s easier than ever. With online refinance options available, you can save a significant amount of money on your monthly payments with very little effort on your part. Unfortunately, a lot of companies want to take advantage of new home owners and they don’t always offer competitive rates or services. To make sure you get what you want from a refinance company, take some time up front to compare offers from at least three different lenders and ask for referrals from trusted friends and family members who have used these services in the past. It will ultimately be worth it when you see how much money you can save—and that goes for almost anything in life!
Shop around for the best loan terms
When you’re refinancing your home, one of your main objectives is to find a low interest rate. However, you shouldn’t stop there when comparing rates from lenders; make sure that you also compare other loan terms and fees. As an example, some lenders charge origination fees—that is, fees for setting up your loan. If so, ask how much those are or whether they can be negotiated away in exchange for a lower interest rate.
Check your credit score
A high credit score can go a long way toward getting your mortgage application approved and securing a low interest rate. Before applying for a home loan, pull your free annual credit report from Experian, Equifax and TransUnion. You should request one report from each bureau every four months, since you can only get your report from one bureau every four months. If you want a copy of your credit score (which is different than pulling your report), check out these two options: Credit Sesame and Credit Karma. A credit score range of 760 to 850 is considered excellent and will help you secure more favorable terms when refinancing or buying a new home; if yours is below that range, consider taking some time to improve it before jumping into home shopping.
Apply, pay and wait
Before you can even think about refinancing your home, there are some preliminary steps you’ll need to take. First and foremost, you need an appraisal of your property. What’s involved in getting a professional appraisal? Depending on where you live, a professional appraiser can review any number of factors including comparable market values in nearby neighborhoods and recent sale prices of homes similar to yours. The entire process should take no more than a few days and will cost around $300-$600 or so—which is pretty standard. If all goes well, after that point, it will be time for loan approval.
Understand what you are getting into with rates
When you’re refinancing, it’s easy to focus on interest rates and loan terms. However, it’s equally important to budget for closing costs, which can be significant, depending on your situation. Closing costs include appraisal fees (which typically range from $350-$1,000), credit report fees ($20-$50 per person), title search fees ($35-$200) and document preparation fees (anywhere from $300-2,000). If you’re refinanced property is significantly more or less than its original value or if you have a complex financial situation—both factors that can impact closing costs—you may end up paying as much as 6% of your loan amount in closing costs. Try to make sure you can afford these upfront charges before beginning the process.
Make sure you are prepared for closing costs
When purchasing a home, it is essential to have enough funds on hand or in a reserve account to cover your closing costs. Your lender will let you know exactly how much they are, but they can be anywhere from 2% – 4% of your loan amount. By planning ahead and saving for them, you can avoid putting yourself in an uncomfortable financial situation that could cause stress or delay. You’ll also get better rates by being prepared!
Refinancing your home can be complicated and stressful. It doesn’t have to be that way, though. With a little preparation, you can easily approach it with confidence and make yourself fully aware of all your options. Take some time now to look over these resources on refinancing and get ready for what is likely one of the biggest financial decisions you’ll ever make!