Are you struggling to pay back your home loan? It may be time to refinance your mortgage.
Mortgage refinancing is one way to clear your existing loan and get a new one at a lower rate of interest and better terms.
It may help you end up with a longer-term of loan and affordable monthly payments. If you go for a cash-out refinance, you can even get some extra money that you can use, to make some improvements to your home, or pay off existing debt.
There are many mortgage lenders who might contact you through mortgage leads for mortgage refinancing. Before you sign up with any of these, here are a few things you may have to work out:
Improve Your Credit Score
Your credit score is the one that will help the lenders determine what interest rate they should be offering you for your loan. If it is too low, you will be charged a higher interest rate, which may not serve the purpose of getting your mortgage refinanced. A few things you can do to improve your credit score before getting your mortgage refinanced are:
- Getting your credit report checked for errors if any
- Make sure there are no negative entries in your credit report
- Repaying your credit card dues or increasing the credit limit on your credit card
- Paying your bills on time
- Clearing off smaller debts if any
Make sure you don’t open any new line of credit until your refinance comes through. This can lower your credit score temporarily.
Prepare Your Financial Documentation
The only way to make your mortgage refinance work for you is to prove to the lender that you can pay back your loan within time. For this, you will need to put together various financial documents such as your recent bank statements, your recent pay stubs, and your recent W-2 forms. If you are self-employed you may need your full tax return to get your income verified.
Keeping these documents ready can help you get your mortgage refinanced without wasting any time. Stay in touch with your lender so that you can respond to any of his requests immediately.
Shop Around for the Perfect Lender
There may be many lenders to get your mortgage refinanced. You can find most of them through mortgage leads. Do your research and find out what their fees and interest rates are. Find out what monthly payment you can afford and review your options. Ask the right questions and note down the answers given by your lenders. You can compare these later and make the right decision.
Keep Aside Some Money for Closing Costs
Getting your mortgage refinanced might seem a great way to lower your monthly payments. Nevertheless, it does come with some fees and closing costs. These include application fees, attorney’s fees, appraisal fees, inspection fees, discount points, and expenses associated with title searches and title insurance. These should approximately come up to about 3 percent of the total value of your loan. Make sure you understand what you have to pay here and arrange for the necessary funds.
Rolling these closing costs into your loan is one option you can consider if you don’t have the money to pay for them now. However, doing so will increase your interest and therefore, your monthly payments.
You can do a few low-cost upgrades to your home to increase its value. This way, you can get yourself a higher loan at a better interest rate. Make sure you keep track of these upgrades so that you can show them to the appraiser when he comes to evaluate your home.