22 Jan The Beginner’s Checklist for Refinancing
Does your vision for next year include more financial stability? Home and health, savings and security; they’ve all become important to us in the wake of 2020 and the global pandemic. Many homeowners have a checklist for refinancing and have found refinance to be a viable solution for saving money or creating a cushion as things eventually return to normal.
Record low interest rates and a robust housing market have made refinancing even more attractive. If you’re considering this action, let’s ask some sensible questions and run down a thorough checklist as you navigate the process.
What is your objective?
Ask the important questions before proceeding so you’ll make the right decision for you and your financial situation.
_ Are you hoping to reduce your monthly payment?
If you know your home has equity built up, and the interest rates are competitive with your current rate, then refinancing could mean a smaller mortgage payment each month.
_ Reducing your term from 30 years to 10, 15 or 20?
Perhaps you’re in the position to pay a little more each month and wish to pay off the total mortgage sooner. Refinancing for a shorter term can save thousands or more in the long run.
_ Refinancing in order to eliminate your PMI?
If you purchased with an FHA loan, you probably pay private mortgage insurance each month. Leverage a stronger credit rating or LTV (loan-to-value ratio) into a new mortgage and drop the costly PMI.
_ Switching from an ARM to conventional?
Refinancing from an adjustable-rate mortgage to a conventional, fixed rate loan can make sense if you’re looking for stability and know your long-term occupancy plans.
_ Tapping your equity for cash?
A popular choice for homeowners, cash-out refinancing allows you to take the difference between your home’s equity and a new loan in cash. The reasons may include debt consolidation, home improvements, investing or emergency expenses.
Strength in numbers
While you can’t predict the exact value of your home or how much you’ll qualify for, you can crunch some preliminary numbers to get you prepared.
_ The payoff on your current mortgage.
A quick look at your recent statement will show you the balance of the principal and maturity date.
_ Check your current loan’s interest rate as well as current rates.
Although you won’t know your final, approved interest rate, you can get an idea if there’s a substantial difference. Even one percent can add up to savings.
_ Neighborhood values.
Online refinance calculators can provide you with an estimated value of your home based on recent, comparable neighborhood sales. Keep in mind any major improvements you may have made since purchasing that will positively impact an appraisal.
_ Loan amount.
Your refinanced loan amount will be determined by the LTV. The amount varies by lender, but the ideal ratio is 80/20, with your home equity meeting the 20% requirement.
_ Closing costs.
Fees and closing costs on most refinances range from 2 to 5% of the loan. Estimate the length of time you’ll need to stay in the home to recoup those costs for your breakeven point.
What’s the score, and more
Your refinance qualification will depend on your credit standing and ability to make your monthly payment, so lenders will be looking for the following numbers:
_ Credit rating.
The average FICO score is 695, however most mortgage lenders will work with those who fall below.
_ Household income.
Include the income of anyone who will be on the refinance agreement.
_ DTI – debt-to-income ratio.
This is the percentage of your gross monthly income that goes toward paying your debts (mortgage, credit cards, car loans, etc.).
Due diligence with documents
You’ll recall the required paperwork when you purchased your home, and that doesn’t change much for a refi. Here’s a reminder of items you’ll be asked for.
_ Current mortgage.
_ Credit report.
The lender will typically pull this for you to start the qualifying process.
_ Tax returns, pay stubs, W2s or 1099s.
Proof of employment and income will usually include two years of W2s and recent pay stubs. Personal tax returns, P&L statements, or 1099s will be requested for the self-employed and contractors.
_ Driver’s license or acceptable ID.
_ Statements of assets.
Additional assets may include savings statements, CDs, stocks, 401Ks, or IRAs.
Other paperwork required could include proof of alimony or child support payments covered by divorce decrees, or documents of obligations outside of your credit report such as medical bills or student loans.
Landing the right lender
Of course, you’ll want to find the right mortgage lender who can not only provide the best rates and lowest fees, but one who offers a personalized, supportive refinance experience.
_ Shop around.
Ask your friends and family for referrals and don’t automatically assume the big banks offer more. Smaller institutions and private mortgage lenders may be more flexible.
_ Be prepared.
Have as much of the relevant numbers and documents listed above ready in order to answer their questions.
_ Get a quote.
<span”>Check with lenders on their specific closing fees, then request several quotes to find the best rate and customer service.
_ Lock it in!
Secure your desired interest rate with the chosen lender and you’re ready to refinance and start saving.
Let EnTrust Funding (ETF) answer your refinance questions and check off the items necessary to save money with a new mortgage.