There are several potential benefits to a home refinance. But all too often, a homeowner makes these common mistakes when refinancing their home. Read up on these mistakes now so you know what to avoid in the future.
1. Harming your credit score
As you prepare to refinance, you’ll want to get your finances in order. Sudden changes in your credit score, like taking on excessive debt or closing any unused credit cards, can harm your credit. The higher your credit score, the better chances you have of getting a lower rate. Make sure not to make any large purchases or other changes that might lower your score.
2. Not getting a second opinion
When looking at your refinance options, it’s best to get a second opinion. Rates and fees can vary from lender to lender. You want to choose the mortgage professional who can get you the best value on your refinance, along with someone who is open and honest about helping you make the best decisions for your unique situation.
3. Focusing too much on the rates
While rates do play an important role in your refinance, they don’t paint the full picture. If you focus too much on changing interest rates and try to time out your refinance according to rates, then you may miss the mark completely. Also, you want to think about the overall benefits and value of your refinance options.
4. Not protecting your home’s value
Most refinances require you to have your home appraised. So you’ll want to do your best at protecting your home’s value. Not keeping up with regular house maintenance, letting your yard get overgrown with weeds, or DIY renovations gone wrong can significantly harm your home’s value.
5. Overlooking “junk fees”
Read the fine print before agreeing to pay irrelevant fees. Application and title fees are reasonable. But “junk fees” include things like “document preparation” or being charged too much for something as simple as obtaining a credit score. When getting a second opinion, keep an eye out for any fees that seem suspicious.
6. Taking out too much equity
While tapping into your home’s equity can be great for renovations, paying off credit card debt, or even going on vacation, it’s not a good idea to take out too much of your home’s equity. You want to keep a cushion of equity to protect you in case housing prices fall.
It’s important to do your research and understand how to have the best experience possible when refinancing your home. However, you should always speak to a trusted professional who can assess your unique situation, your future goals, and help you make the best decisions for yourself.