A mortgage is potentially one of the largest loans you take on in your lifetime. That major debt can be like a monkey on your back, driving you to find ways to save money and pay it off faster. Refinancing is a popular strategy to alleviate the burden of the original mortgage’s financing terms. Refinance agreements may allow you to adjust the length of your loan, switch from a variable to a fixed interest rate or receive other more favorable terms. Securing a new agreement involves going through a process similar to what you went through when you obtained your initial mortgage. Know what to expect before you submit a refinance application and make sure all your bases are covered to better your chances at having your loan approved.
Know the Lender’s Credit Score Requirements
Obtain a copy of your three-digit number months in advance to determine where you stand. If you find you fall below the requirements, assess your credit behavior and hold off on applying. Often the best tips are to cut back on your credit card utilization rate; pay down balances to a usage less than 30 percent to boost your score. Also be sure you don’t have any recent late payments, which are known to knock off several points.
Organize Your Income Documents
You will be required to provide several documents that demonstrate your ability to repay the debt, such as: proof of income, current loan balances, assets, and investment accounts. Gather and review these documents to make sure you’re not missing any paperwork, and be prepared to explain any gaps in your financial records.
Review Your Credit Report
Lenders will scrutinize your credit report to determine if you are a responsible borrower. Obtain your file at least six months in advance of submitting your application to make sure your information is correct. Getting a copy of your report sooner rather than later will give you ample time to dispute inaccuracies.
Be Prepared for the Fees
Refinancing your mortgage may result in long-term savings, but the initial process is expensive, so put money aside for the associated costs. Expect to pay fees related to:
Refinance Application
Loan Origination
Appraisal
Inspection
Closing
Homeowners
Title Insurance
FHA Fees (such as private mortgage insurance)
Survey Fee
Refinancing your home loan can be a step in the right direction if your finances are worn thin by hefty mortgage payments. Organizing your application materials and making sure your credit score meets lending requirements will facilitate the process and improve your eligibility.