The housing market in the United States is showing signs of recovery. Higher home values are prompting homeowners to pull equity out of their homes and take advantage of low mortgage rates. If you’re one of these homeowners, you might be considering refinancing your mortgage.
Refinancing a mortgage can often help lower your monthly payments, reduce the term of your loan, or both. Refinancing may also be an excellent option to consider when you need cash to make improvements to your home or even to consolidate debt. But trying to decide whether it makes sense to refinance can be quite confusing and frustrating. You’ll want to consider the costs and benefits before making any final decisions. Consider talking to a trusted financial advisor who can help you determine if refinancing is a good idea. If you decide to proceed, here are all the steps you’ll need to take to refinance your home mortgage.
Set a Refinancing Goal
Before you start approaching lenders, it’s important that you determine what you hope to achieve by refinancing your mortgage loan. People who are in need of funds often refinance so they can tap into the equity they’ve built up. Others refinance to secure a lower rate, a lower monthly payment, or a different term. Knowing what you want to accomplish will help you pick the right loan.
Work out How Much Equity You Have
If you’ve got a small amount of equity in your home, you may not be eligible for the lowest interest rates. When you refinance with a lender who uses Fannie Mae or Freddie Mac guidelines, you must have at least 20% equity. Fortunately, when it comes to the 20% down payment rule, the industry has gotten more flexible.
Check Your Credit Score
If you’re planning on refinancing your loan or have already applied for a loan, you may want to check your credit score or credit report first. Credit scores and reports can reveal important information about how lenders will assess your application.
Get Your Paperwork in Order
Getting a refinance is a major step for most homeowners. You’re changing one major financial obligation, your mortgage, with another. If you plan on doing this, it’s important to have all of your paperwork in order before you contact a lender.
