Two-thirds of mortgage applications in the US are from people who already own their home and are seeking to change the terms of their mortgage. So what do they know that could benefit you? A simple refinance could be the difference between lower interest rates and paying your house off sooner.
When to Refinance?
Rates are still recovering from six years ago, and if you can lower your interest rate by 1% full point, it’s a no brainer. But maybe you want to shorten the term to payoff your loan sooner, or extend it to lower your monthly payment. Other reasonable reasons would be to use the funds to consolidate debt, make home improvements, or pay tuition. Any of these are primed to save you money in the long run.
However, if you plan on moving within the next 18-24 months, you may want to reconsider due to the time it will take to recoup closing costs.
Where do you begin?
Today’s stringent mortgage lending criteria can vary lender to lender, so it’s smart to shop around. Request a Good Faith Estimate (GFE). This document will disclose your loan costs and is an important tool in comparing lenders. All of our rates are updated daily on our website. You can even sign up for Rate Watch which sends you notifications when the rates reach your goals.
What Will My Mortgage Lender Be Looking for in a Borrower? There are a few things that can affect your refinance like your credit score, employment history and income, assets, and current debt-to-income ratio.
It’s important to maintain a good credit score since this is the primary way that lenders evaluate potential borrowers. If your credit report shows that you do not have a good credit history (680 or higher), talk to your lender about how to re-establish it. Not all credit issues will keep you from getting refinanced, but it is important to keep in mind that adverse credit information may affect your interest rate.
How to prepare for the Appraisal?
Appraisals are arranged by the lender, and the costs are usually not rolled into the new plan. The appraiser will look at many aspects of your home including the surrounding neighborhood and schools. They will not use foreclosures and short sales to reflect your personal appraisal unless they absolutely have to.
“In order to add value to your home before the appraiser’s visit, reverse depreciation and modernize the utility of the house,” said guest speaker, Zack Rhodes of Authority Appraisals. “Not all updates will get you ROI, but the best rooms to update are kitchens or finished basements.”
You’re approved, now what?There are several types of loans to choose from: Conventional fixed and adjustable rates, FHA, and VA. Conventional loan terms will allow for up to 95% of the appraised value and no prepayment penalties. The entire process should only take about 30 days, and your first payment will be due the second month after closing.
Lisa Boaz has been serving members at West Community Credit Union in consumer lending since 1991. She is a Mortgage Manager and recently received the Five Star Professional Award for exceptional service. To date, Lisa has closed over $174 million in mortgage loans.