Most of us have very little, if any experience with refinancing a mortgage. There are some things you can do to make the procedure smooth and easy. Listen to the voice of experience and use the tips below to make your refinance experience a snap.
It is helpful to learn about industry specific terms before attempting to refinance. For example, knowing what the word “equity” means is very important as this word will come up time and again during the refinancing process. Equity is the actual dollar value you own in your home. If you have been paying on a mortgage for a long time, equity will be higher than if you have been paying only for a few months. Equity is what lenders look at when determining whether a borrower is a likely candidate for refinancing. Most refinancing lenders require that borrowers have equity of at least 8.25% in the property to be refinanced.
In today’s recession economy, home values have plummeted leaving refinancing a somewhat complex issue. Statistics predict that upwards of ¾ of all refinancing applications are rejected. Many owners faced with foreclosure are trying to refinance and save their homes. With enough equity in the property, some owners are succeeding in borrowing by refinancing and paying off their default.
Credit scores are critical to refinancing efforts. The better the owner’s credit score the better the terms they will receive in their refinance loan. Keep your FICO score high and let your credit work for you. A credit score of 680 was considered excellent until the recent economic downturn; now lenders are looking for borrowers with scores nearer 740.
If your current loan bears an interest rate significantly higher than current market rates, now might be the right time to refinance. Take stock of your monetary situation and determine whether it is in your best interest to remortgage your home. Look out for loans with alluring lower interest rates and excessive refinance charges; you could pay more in the long run with this type of loan.
Refinance charges vary from lender to lender. They are generally significant and need to be considered before committing to refinancing. Realistically a loan for $300,000 could easily total up to $7,000 in closing fees. These fees must be paid one way or another; some choose to add closing fees to the loan principal and some are fortunate enough to have the cash to pay the fees up front. Often times up front payment of closing costs results in a discount being applied to the bottom line.
Shop among lenders and obtain all the pertinent information from each before deciding on which lender to apply with. The best approach to finding a lender is to accumulate and compare costs, rates and services; then select the lender who can provide the best re-finance loan for your circumstance.
Be patient; it takes time for lenders to scrutinize the piles of applications they receive. Some applications take longer than others to process for whatever reason; don’t lose heart if yours is one that is slow to close.