Prepare to Refinance in Six Steps
With all the mortgage news, you may be considering refinancing your mortgage. Before you get started it’s a good idea to be prepared. Here’s a list of things to do to get you ready to refinance.
Check your current mortgage.
If you have an adjustable-rate mortgage, find out when your rate and payment will reset. At current interest rates, how much will your payment go up? Can you afford it? Do you want to? If you refinance your current loan, will you have to pay a pre-payment penalty? If you are considering a cash-out refinance, estimate how much equity you have in your home.
Check your credit score.
Go to www.annualcreditreport.com and get your free credit report. It’s also worth it to pay a fee to get your score. If your score is 760 or above, you should be in good shape, credit-wise. If your score is below 660, you may want to do a little credit repair before you refinance.
Check your debt-to-income ratio.
Along with credit score, debt-to-income ratio is another qualifying factor lenders use. Generally speaking, you should spend no more than 36 percent of your gross (pre-tax and withholdings) income on housing and recurring debt like car payments and other loans.
Check your loan options.
If you have an adjustable-rate mortgage, you might want the security of a fixed-rate mortgage. But if you are fairly certain you won’t be in your home for longer than a few more years, a hybrid ARM might be the way to go, with a fixed-rate and payment for the first few years of the loan. These loans often come with a lower rate than a traditional 30-year fixed rate loan.
Check out the competition.
Shop rates and programs from different lenders to find the best deal for a loan that fits your needs.
Check your budget.
Make sure you can afford your new loan. Whether you are refinancing from an adjustable-rate mortgage to the security of a fixed-rate loan at a higher interest rate, or taking cash out of your home for a larger loan, make sure you can afford the increased payment.
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