Homeowners will take on a refinance mortgage loan to meet a variety of goals. A refinanced mortgage paves the way toward lower interest rates, lower monthly payments, or cash-out from the home’s current equity.
Reaching this perk is a process, but the effort is worth the work.
To get a clear understanding of the benefits from a 20,000-foot view, it’s important to understand each step. This way, you can make sure to align all your goals and maximize the benefits of a home loan refinance. Here are nine steps that will help get you there.
Financial Picture Review
It’s imperative to know where you stand before you can know where you will go. A clear understanding of your financial credentials, such as credit score, income, job history, debt and other financial details of consequence, should be crystal clear before proceeding. That’s because not meeting certain thresholds can be disqualifying.
Types of loan
Homeowners who decide to refinance will do so for a number of reasons. Whether your goal is to lower your payments or take cash out from the equity in your home, the decision on which type of loan to pursue needs to be established early.
Duration of the loan is another consideration. Homeowners can take on a 15- 20- or 30-year loan and in some cases, will be able to shorten the life of their loan for quicker payoff. Applicants will also choose from government insured (FHA) or guaranteed (VA) or conventional lending. This selection matters as some government loans have less stringent requirements.
Your home’s value
Given the trajectory of the real estate market in certain locations, chances are the equity in your home has increased substantially over the years. But you still need to meet lender specifications to get approved. Some lenders will pass on your refinance application if the loan amount is more than 90 percent of the home’s value, for example. As a word of caution, mortgage insurance will enter into the equation if the loan amount is more than 80 percent of the home’s value.
Checking your home’s estimated value is as easy as logging into your favorite real estate website or app. This will give you a rough estimate and help shape your borrowing expectations. Keep in mind these types of websites and apps are not a substitute for an appraisal or broker’s neighborhood comparison.
To get the most out of your investment, you want to work with a lender that offers competitive refinancing costs. These costs include interest and origination fees. When comparing costs, make sure to measure apples to apples. If you’ve decided to move forward with a 15-year fixed-rate loan, for instance, then it makes little sense to see the cost comparisons of a competitor’s 30-year fixed-rate loan before making a decision.
Pick a lender
Once you’ve done all the research and price breakdowns on a refinance loan, you’ll want to identify which lender to work with and move forward.
Now that you decided on a lender, it’s time to escalate your efforts with an application. Most applications are user-friendly and will not take too long to complete. In most cases, you can apply online and receive immediate feedback. Don’t worry about all the supporting materials as the initial application process will only ask for basic financial information.
Lock in rate (optional)
After applying and consulting with the lender, it could be a good time to lock in the rate of your loan program to provide security that things will not change. Because rates can adjust at a moment’s notice, locking in the rate is a good practice in many instances. Keep in mind, however, that locking in the rate will come with a rate-lock fee.
Property appraisal and inspection
Before granting a loan, lenders must protect themselves and get an estimate of the home’s value. The lender will want to make sure there’s enough collateral to process the loan. The appraisal is a way to accomplish this. Also, inspection will determine the home’s general condition.
Close on loan
Assuming you hit few roadblocks, closing on the loan will occur in due time. Once formally approved, the lender will schedule a close date. At the close, your existing loan will be paid off and you’ll start payments on the new mortgage that may help you achieve your financial goals and take on new exciting ventures as a homeowner.
If you are ready to get started, contact us today!