With mortgage interest rates at a low rate, many Americans have recently considered refinancing their homes. If you are interested in finding out more, you may want to do so right away. While rates are good now, they are expected to climb as the year progresses. This means that waiting any longer to pursue a home refinancing could cost you!
1. Review and Improve Your Credit Score
One of the major factors that lenders take into consideration when evaluating someone for a potential refinance is their credit score. Before you speak with potential lenders, take the time to prune and polish your credit - it could save you time and money in the long run!
You can get a free credit report annually from each of the three major credit reporting agencies (Experian, TansUnion, and Credit Karma). Request these and look over them very closely. If you spot an error, have it removed from your report. Remember, most lenders are looking for a score of 720 or above.
Another way to improve your credit is to ensure that you use less than 50% of your credit card's available balance (less than 30% is even better). Assuming that you can't pay off a huge chunk of your balance; try asking your credit card company to raise your credit limit. But remember - the extra gap is just there to make your credit score better. Using the extra allocation won't do your score any good.
2. Investigate Potential Lenders
Once you have made your credit score sparkle, it's time for you to start seeking out potential lenders. Many people only consider their local bank, but it's worth the extra research to have a few options. If you need ideas, friends and real estate agents can be great resources in your search for the perfect lender. Make sure that you look for a refinancing company with:
- Good Rates
- Quick Turn-Around Time
- A Reasonable Debt-to-Income Ratio
- Sound Underwriting Policies
If you find a lender with all these qualities, they are probably a solid choice for your refinance. When you're ready to move ahead with one refinancing company, there are a few more steps that you need to take.
3. Gather the Necessary Paperwork
When you're ready to apply for your refinancing, be ready to surrender a huge batch of paperwork to your lender. They will like need to see:
Complete bank statements for the previous several months.
Several years worth of tax returns.
Explanations for any non-categorized deposits.
Once your lending institution is in possession of all these documents, they will be able to evaluate your financial position. This is a key step in determining if they will approve you for the refinancing process.
4. Consider Your Financial Future
Before you pull the trigger and go through with a refinance of your home, it is important to make sure that you are making the right decision. While lower monthly payments look tempting, be careful to consider the risks of this transaction.
One of the biggest mistakes that people make when refinancing their home is failing to look at a financial timeline. Typically, a mortgage lasts 30 years. Don't make the mistake of extending your mortgage into your retirement. It's not necessarily worth the better terms in the present if the refinancing will make your retirement uncertain or strained.
Also remember that when you refinance your home you need to reevaluate your title insurance. Look no further for your insurance needs then Frimark/Keller & Associates. Call 847-907-4520 to speak to one of our representatives.