Post image for The Ins and Outs of Mortgage Refinancing

The Ins and Outs of Mortgage Refinancing

by Jason on May 25, 2011

The current economic environment is making it a great time to refinance an existing home loan. Interest rates are as low as they have been in a long time, and with good credit borrowers are qualifying for great deals. Refinancing makes a whole lot of sense for anyone stuck with a high interest loan or that needs to use some of the built up equity in their home. For anyone in the market to refinance their existing home loan, here are a few things that you should know.

Find out your home’s value

Refinancing lets you take cash out of the price appreciation built up in your home. Housing prices have dropped dramatically in recent years so you need to find out exactly what your home is worth. You can check online and see what homes have been selling for in your neighborhood. This will give you a ballpark figure of your home’s values.

Another option is to hire an appraiser and find out the true value of your house. This way you will know exactly what you are working with in the event of a refinance and how much cash you have available in your house. Your home needs to have a much higher value than what you owe to qualify for a loan.

Credit scores do count

Over the past decade, qualifying for home loans was incredibly easy. There were lots of loan products available that required little to no documentation. Just about anyone could get a home loan that was in the market for one. Today, things are a whole lot more difficult. Refinancing a loan requires that you have a good credit score.

You should run a check of your credit before financing and make sure that your credit score is satisfactory. The interest rate that you qualify for is based largely on your credit score. Improving your score will reduce your rate and save you money on the amount that you refinance over the life of your loan.

Prepare for closing costs

The good thing about refinancing is that you do not have to come up with money for a down payment. Down payments can account for as much as 20% of the home’s purchase price. Although you don’t have to pay a down payment, you may have to pay closing costs on a loan.

Loans with the lowest interest rates typically do have closing costs attached. You can always include the closing costs in the loan but you will have to pay a higher monthly payment or get a higher interest rate. Pay for your closing costs in cash and you will save a lot of money over the life of your loan.

Shop around for special offers

Buying a house is just like buying anything else. You will get the best deals if you shop around at multiple places. You can start at a credit union or bank and find out who is offering the best financing options for your needs. There are also online sites like LendingTree in which banks will actually compete against each other for your business.
Another option that is often overlooked by people is to contact a mortgage broker. A mortgage broker is kind of like a middleman who negotiates loans on behalf of loan borrowers. Mortgage brokers work exclusively on your behalf and often have access to additional forms of financing that may not be available at a single bank.

Convert a bad loan product to a good product

The best refinancing situations are when you can switch from a loan product with a much higher interest rate to one with a much lower one. It makes sense to convert adjustable rate mortgages with higher rates to much lower fixed rate mortgages. Refinancing can take an exotic mortgage product and switch it to a traditional one.

If you are unsure about whether or not to refinance, you just need to look at the interest rate. If your current interest rate is two percentage points higher then the current interest rates being offered then you need to look into refinancing.

Negotiate with your lender

Negotiating with your lender can reduce the total amount of money that you will have to pay during the process. There are a lot of areas in which lenders have flexibility to waive fees in the event of a mortgage refinance.

No cost refinancing loans can result in title fees and home appraisal fees being waived or reduced substantially. Taking a few minutes to bargain with your lender could wind up saving you hundreds of dollars.

Ask for a good faith estimate

A good faith estimate will give you a report of exactly how much your new loan will cost you. You will get a detailed explanation of all of the settlement costs that you will have to pay. You can use a good faith estimate to help you make the decision about which loan to take.

Unfortunately, not enough borrowers utilize this valuable document. The Washington Post ran a survey and found that most homeowners ignore their good faith estimates when buying a home. More homeowners should rely on a good faith estimate. It is the single best resource that a homeowner can rely on to help them figure out the total cost of the financing process.

The best borrowers when refinancing a loan are informed borrowers. You can properly equip yourself for the entire process by applying each of these tips. Be sure that you find a company that can provide helpful advice and has a variety of options that will fit your needs. By doing this will ensure that you procure a loan that fits you and your family’s finances perfectly.

Google+ Comments

Related Posts