If the time has come when you are either looking to lower your interest rate or your are planning a significant renovation, then it may make sense to refinance your home. Before you contact a local and trustworthy lender, consider taking these steps for preparing yourself for refinancing.
Do the Math
It is important to review your finances before you refinance. Although a simple online mortgage calculator can help, there are other things to factor in. For one, consider the loan term in the number of years and your age for when you plan on retiring. Beginning a 30 year loan soon may not be wise if you are closer than that to retirement. There are other options like a 15 year mortgage term which may be more appropriate. Just don’t forget, this will be a higher monthly payment due to the shorter term.
Check Your Credit
Federal law permits you to check your credit report once per year at no cost. The three major credit bureaus are Experian, TransUnion and Equifax and checking your credit once per year will provide you with a sense of your credit’s strengths and weaknesses. These reports won’t provide your actual score, but for a small charge you can get it. At the very least, addressing errors that may be on the report can have an impact on improving your score.
Lenders will want to see that you have available credit so paying down your debt is a smart idea. It is also helpful to have some savings in the bank for a handful of months in case of a job loss or the like. If you aren’t fortunate to have a lot in savings, a refinance still can be a good option. Alert your lender of your situation and they will help decide what is best.
Your Home’s Value
Lenders will want to verify that you owe less than 80% of your home’s value for your existing loan. As part of the process an appraisal will be conducted to confirm a fair market value. Before you begin this whole process you may want to estimate yourself what your home is valued at by reviewing recent sales of similar homes in your area.
Unless you have good reason not to use your current lender, they would be a good place to start. Most lenders will want to retain your business so they will most likely match the lowest available rates available. Shop around and do your own homework on rates so that you know you are getting the best deal.