There are a variety of reasons to consider refinancing your mortgage. Some of the most common include reducing your payment, paying off your loan faster, converting between a fixed-rate and adjustable rate mortgage, and tapping into your home equity (also known as cash-out refinancing).
Regardless of the reason, everyone who refinances wants the lowest mortgage interest rate possible. A lower interest rate means lower monthly mortgage payments while increasing the rate you build equity (wealth) in your home.
But before you contact mortgage lenders, you should begin preparing your finances. Taking the following steps ahead of time can help you obtain the lowest possible rate when it’s time to refinance:
Improve your credit score
A high credit score puts you in the best position for a mortgage refinance. And the number number one way to have good credit is paying your bills on time, every time. You can also help improve your credit score by paying off debt (such as on credit cards). If you’re planning on refinancing, try to hold off on making major purchases as doing so can hurt your credit profile. For more information on credit scores, visit the Federal Trade Commission website.
Increase your home equity
The more equity you have in your home, the more refinancing options available, and the lower the rate you can get. While the value of your home is tied to the real estate market, you can build home equity by making your monthly payments over the years. There are also home improvements you can make to help increase its value, including on a budget.
Organize your financial documents
To refinance your home, you should be prepared to provide two years of tax returns with W2s, at least one month of recent pay stubs, and your two most recent bank statements. Gathering these documents ahead of time can speed up your loan process. A shorter refinance process can lower your interest rate by locking the rate for a shorter time period.
Begin saving cash for closing costs
Closing costs for refinancing are generally between 2 – 5% of the loan amount. There are various ways to handle the closing costs, but paying your closing costs up front can bring relief to your monthly payments.
Research options online and speak to different lenders
There are many websites with excellent advice on mortgage refinancing. I suggest viewing the USA.gov website, and speaking with different mortgage lenders about your situation.
If you’d like to learn more about mortgage refinancing, please contact me today!
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