How to Prepare for Refinancing Your Home
If you are either looking to reduce your interest rate or planning out a significant renovation, then it may make sense to refinance your home. Before you contact a local and trustworthy lender, consider taking these steps into account.
Do the Math
Refinancing may appear like a great idea, but it is important to review your finances. A simple online mortgage calculator can help, but there are other things to factor in. For example, consider the loan term in the number of years and your age for when you plan on retiring. You may not wish to sign up for a 30 year loan if you are closer than that to retirement. Other options exist like a 15 year mortgage which may be more appropriate. However don’t forget, this will be a higher monthly payment.
Check Your Credit
Under federal law you are permitted to check your credit report once per year at no cost. The three major credit bureaus are Experian, TransUnion and Equifax. Checking your own credit annually will provide you with a sense of your strengths and weaknesses. The reports won’t state your actual score, but for a small charge you can get it. Typically addressing any errors on the report can have a significant impact on improving your score.
Lenders will want to know that you have credit available so working on paying down your debt is a wise idea. It is also beneficial to have ample savings in the bank for several months in the event of a job loss or the like. If you don’t have a lot in reserve, a refinance still can be a good option. Share your situation with a lender and they will help assess what is best.
Your Home’s Value
Most lenders will want to verify that you owe less than 80% of your home’s value. As part of the verification process, they will order an appraisal to confirm a fair market value. First, 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 a reason not to use your current lender, they would be a good place to start. As they will want to retain your business, they will be most likely to match the lowest available rates available. Be sure to shop around and do your own homework on rates so that you know you are getting the best deal.