4 Tips for Refinancing in Today's Market
Yes, the mortgage market has tightened, but the truth is rates are still at historic lows and lenders are anxious to find qualified borrowers. Here are four things you need to know if you want to refinance right now.
1. Know yourself. Gather for yourself all the information that a lender will gather about you: your credit score and credit report; your debt-to-income ratio (the percentage of your income you spend on housing and loan/debt payments); and verification of your assets and income.
2. Know your mortgage. If you are refinancing your adjustable-rate mortgage, know when your rate is scheduled to reset and how much your payment will go up. If you are looking to take cash out, estimate how much equity you have – the difference between the market value of your home and how much you currently owe. (Remember to be realistic and not over-estimate.) Find out if your current mortgage carries a fee for paying off your loan early.
3. Know your options. Think carefully about what kind of loan is the best fit for you: a traditional 30-year fixed-rate or something like a hybrid ARM (an adjustable-rate mortgage with an initial fixed-rate term)? Crunch the numbers with our free mortgage calculators. Then, shop around for the best rate and terms on your new loan.
4. Know your limits. Financially speaking, that is. Make all your payments – not just your mortgage, but any other loans, utilities and credit card bills – on time, every time. Put off any big purchases, like a car or major appliances, until after your new mortgage closes. Check, and then re-check, the affordability of your new mortgage. If you are taking cash out of the equity in your home, make sure you can afford a larger payment. If you are refinancing into an adjustable-rate mortgage, make sure you have a plan for how to manage a changing payment.
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