There are many potential benefits to refinancing your home. However, it’s a good idea to prepare yourself for this process, so you can have the best experience possible.
1. Know your why
Understand your end goal for why you want to refinance. Are you looking to lower your interest rate, reduce your mortgage payments, tap into your home equity, or shorten the term of your home loan? Knowing exactly why you’re looking to refinance is important for weighing the pros and cons of your different refinancing options.
You should also think about potential changes in your future income. For example, if you’re looking to retire in a few years, then your income may decrease. In this case, you may not want to take on a financial burden that will be difficult to handle in the future.
2. Get your finances in check
Your financial situation can affect whether you qualify for a refinance. The better your finances, the better options you may have available to you. As an example, if you have a higher credit score, you may be able to get a lower interest rate. Make sure to avoid any missteps that might harm your credit such as taking on excessive credit card debt, closing out unused credit cards, or not checking your credit score for errors that you can dispute.
Do your best to reduce any monthly debt payments that you can, as your debt-to-income ratio may also impact your refinancing options. You also want to keep your household finances as stable as possible. Any decrease in income or large purchases may complicate the refinancing process.
3. Talk to a mortgage professional
While it’s important to research the different types of refinancing options, you should speak to a professional who can look at your unique situation and help you choose the best course of action for you. You may decide to work with the lender who helped you with your original home mortgage, as this person could have a better understanding of your circumstances and future goals.
When choosing a mortgage professional, it’s best to get a second opinion as rates and fees can vary from lender to lender. Once you begin working with your mortgage professional, they’ll fill you in on the next steps and let you know what all paperwork to gather.
4. Prepare your house for an appraisal
For most refinances, you will need an appraisal to calculate your home’s market value. This appraisal will determine how much equity you have in your home. The more equity you have, the better, because this may help you get a lower rate. For a cash-out refinance, your home equity will affect whether you qualify, as well as how much money you can take out.
Do your best to make general improvements to your home, keeping up with regular maintenance. Most importantly, you should address any potential health or safety issues. For example, making sure smoke/carbon monoxide alarms are in order. If the appraiser notices any safety hazards, this can delay the appraisal process and cost you more in fees.
In addition, you should prep your home as if you’re about to sell it. Making necessary repairs, reducing clutter, sprucing up the landscaping, and deep cleaning to make your home look presentable. Even minor cosmetic changes can add up.
All in all, preparing for a home refinance may seem a bit overwhelming at times. But taking these necessary steps can make the refinancing process run a lot more smoothly.