The refinancing bug is in the air, and if you’re paying a high interest rate, refinancing your mortgage loan can help you qualify for a lower rate and monthly payment. But although refinancing is the thing to do nowadays, not every homeowner is eligible.
Commercials and advertisements make refinancing seem like the easiest thing to do in the world. But the truth is, it can be the hardest thing if you’re not prepared. If you do not fully understand the process, you may inadvertently make decisions that could mess up your mortgage refinance.
Prior to applying for a mortgage refinance, check your credit report and credit score. Too often, homeowners ignore their credit history. They mistakenly feel that refinancing is open to anyone who owns a house, which isn’t true.
The mortgage lender will pull your credit report and if you have anything negative in your recent past, such as a collection account, a judgment or late payments, this can mess up any opportunity to refinance your mortgage. To qualify for the new mortgage, and to qualify for a stellar interest rate, you need a clean credit history.
When preparing to refinance, some homeowners go directly to their existing lender. Working with your current lender is a good idea, as they may waive certain fees and offer a lower rate to keep your business. But don’t ignore other options available to you. Your lender may not be the lowest guy in time. To ensure you get the best rate on your refinance, talk to at least three other banks and request no obligation quotes.
Getting your original home loan wasn’t free, and neither is refinancing. Unfortunately, you have to bring cash to the closing table.
Because this is a new mortgage loan, you have to pay the application fee, the credit report fee, the home appraisal fee, as well as other closing costs. This can be as much as 3% of the loan balance.
Some lenders will waive certain fees to lower your out-of-pocket costs, but this does not eliminate fees altogether.
If you’re in the process of refinancing a mortgage loan, do not quit your job or change jobs. Quitting your job is by far the worst move. If you don’t have a steady income source, the mortgage lender may conclude that you don’t have the financial means to pay a mortgage – despite the fact that you already have an existing mortgage.
Changing your employer during the process may not prevent a refinancing, but it can slow the process. The lender will have to confirm that you’re actually employed with the new company, and they may postpone closing until you receive a couple paychecks.
A mortgage refinance is not a done deal until you sign the paperwork at closing. The lender checks your credit when you apply for the loan, and again on the day of closing.
Any changes to your credit report, such as applying for a new credit card or getting a new auto loan, can have an impact on refinancing. In fact, newly acquired debt can be the kiss of death when purchasing or refinancing a home. This added expense can increase your debt to income ratio, and if your ratio is too high, you may not qualify for a mortgage loan. Postpone all major purchases until after you’ve completed the refinancing.