Here are Some of the Ways to Refinance Your Mortgage
In order to refinance your mortgage, you will need to make sure that your credit score is good. Before you apply for refinancing, get a copy of your credit report to be sure there are no errors.
You must know the value of your home, because your house will have to undergo an appraisal for the lender to know its worth. That number will help determine how much you can borrow. Check comparable sale prices (not just listing prices) in your neighborhood to see if your house is worth as much as you think it is.
If you haven’t applied for a mortgage recently, you may be surprised at how much documentation and verification is involved. Whether you’re scanning, faxing or uploading with your phone, you’ll still need to provide proof of employment, income and assets. That could mean pay stubs, tax returns, bank statements and other documents, which places a premium on organization.
When you start mortgage shopping, make sure you get quotes from multiple lenders or brokers. You might start with your bank, but also consult an independent mortgage broker because one may have programs and deals the other doesn’t. Online quotes give an idea of the range of rates available, but only quotes using your real credit score and the loan-to-value ratio of your deal are truly accurate. Personal referrals are a better way to find a quality mortgage broker.
If you pay “points” on a mortgage – a point is a fee equal to 1 percent of the loan amount – you can get a lower rate. If you plan to keep the home for more than three years, it may be a good idea to pay the points as long as you pay in cash upfront and don’t add to your mortgage balance.
The numbers you want to compare are interest rates, fees and points. Fees will vary by lender. Rates will, too, but rates also will vary based on whether you want to pay points. You also will have additional fees that should be the same no matter which lender you choose, including state or local taxes and title costs.
A refinancing that has no upfront closing costs from the lender has the costs built into the interest rate or adds them to the principal balance. If you plan to keep the loan for a long time, you might be better off paying fees. When you refinance you mortgage, you start the 30-year clock ticking again. If you don’t want to do that, consider a 10-year, 15-year or 20-year mortgage, if you qualify.
The fees charged by the bank aren’t the only costs you’ll need to pay to refinance. You’ll also need to pay taxes, legal fees, title costs and perhaps put additional money in escrow for taxes and insurance. In some states, it pays to shop for closing agents because fees may vary significantly. In other states, there is less variation. Ask to see the closing documents at least 24 hours before you’re expected to sign. That gives you time to ask questions and get any errors corrected.