You most likely have had to get a mortgage in order to finance your home. To help you pay for your house, a mortgage is a loan. Your mortgage lender will add an interest-rate to your loan amount in order to reduce their risk of losing money.
Interest rates can be a pain. They increase your total debt. This is why you should choose a mortgage that has the lowest interest rate. Refinance is the solution.
A lender will pay off an existing loan and then replace it with a new loan with a lower interest rate and terms. Refinance can be done on many loans, including your auto loan and your student loans. Today, however, we will be discussing refinancing your mortgage.
Knowing what to expect when refinancing your mortgage can help you save both time and money. Here are 8 tips to help you get a mortgage loan. You can also use the links provided to jump to the refinance tip you are interested in.
Why you want to refinance
You may want to refinance mortgage for many reasons.
This will allow you to save time and money by determining the reason.
Refinancing your loan may be an option for you because of these reasons:
- Lower payments: Mortgages are expensive, especially if your home is expensive. Refinancing is an option if you are having trouble making your monthly payments.
- Paying off your loan faster: As you know, interest is charged by your mortgage lender for lending money to you. This increases the amount you owe on you home. Refinancing is a good option if you are in a better financial position than when you first took out your mortgage. This will save you interest and reduce the term.
- Refinance to a lender that has a lower rate of interest. This will save you thousands in interest payments over the long-term.
- Refinance with cash: A cash-out refinance can replace your existing mortgage loan with a more expensive mortgage loan. You will receive the difference in cash as a loan, and you have full control over how it is used.
- Removing your mortgage insurance: You most likely have a FHA Loan with a down payment of less than 20%. This means that you will have a mortgage premium (MIP), built into your monthly mortgage payments. You can refinance your FHA loan to a conventional loan if you have 20% equity and get rid of your MIP.
After you have determined the reasons you wish to refinance or improve your loan, you can start looking for a lender. There are many lenders that specialize in different types and types of refinancing so find one that suits your needs.
Correct Credit Report Errors
This tip for refinance is undoubtedly the most important in saving money on a refinance. Lenders will judge your credit score on how likely you are to repay the money borrowed. Lenders will not accept a credit score below 620 because it is too low. High credit scores will demonstrate trustworthiness to lenders and allow you to make your monthly payments on-time, which will result in a lower interest rate.
It’s time for you to act if your credit report is riddled by errors. To ensure that you are not preventing yourself from obtaining a new loan, Mint can provide a credit report for free.
You can dispute common credit reporting errors:
- Incorrect personal data: If your credit bureau mispells your name, has the wrong address, Social Security Number, or employment information, it can lead to a drop in your credit score. If you find any incorrect personal information, please contact your reporting bureau.
- Accounts marked “closed” by lender: Your credit score may drop if you have an account you’ve closed voluntarily but is still listed on your credit report as “closed” by lender.
- Bad Debts: A failure to repay bad debts can cause your credit score to drop dramatically. Credit reporting bureaus have to remove any negative items after 7 year. Contact the three major credit reporting agencies if they are not removed.
- Multiple negative marks: Credit scores can be affected if you have accounts with multiple negative items.
Regularly check your credit score. You can contact the credit bureau that issued your credit report to correct any errors. TransUnion(r), Equifax (r) and Experian ™ are the three main credit reporting agencies. If you find an error in your credit report, you must contact each one individually.
Make Your Financial Documents Easily Accessible
You will need to show your lender that you can make your monthly payments on-time when you apply for a mortgage refinance.
Gather all financial documents necessary to prove your responsibility. The most common documents your lender will request are:
- Two of your most recent W-2 Forms
- Two of your most recent bank statements
- Two of your most recent pay slips
Your lender may also ask you for information if you are applying for a mortgage with another person, such as your spouse.
For self-employed people, make sure you have your complete tax return and any other documentation to prove your income.
Refinances will go much faster if you have all the necessary forms and documents. You can stay on track by staying in constant contact and responding to any questions during underwriting.
Build Your Credit Score
Your credit score, as mentioned previously, is an important factor that will determine the term and rate of your refinance.
Low credit scores will lead to higher long-term costs. Your lender will most likely charge a higher interest rate for your new home loan.