Mortgage Loan Refinancing – Steps to Remember

Want to refinance your mortgage loan? Fortunately, if you know what steps are involved, the process can be straightforward. Here’s everything you need to do.

Make Sure of Your Refinancing Goals

Refinancing comes with various options in terms of tenures, interest rates, and types of mortgage. The type of refinance you should pick will depend on what your goal is. Here are a few reasons why people opt to refinance their mortgage:

To pay off their mortgage sooner by refinancing into a shorter-term mortgage.

To make lower monthly payments by refinancing into a longer-term mortgage.

To reduce the rate of interest by refinancing into a shorter-term mortgage with a lower rate of interest.

To get cash for other requirements by opting for a cash-out refinance.

Assess the Equity You Have on Your Home

Your home equity refers to the difference between how much your property is currently worth and how much you actually owe on your mortgage. If you owe $80,000 on your mortgage and, at that point, your house is valued at $140,000, you essentially have an equity of $60,000. If you want to refinance your home, you will need to have enough equity. And keep in mind that you may need more equity for a cash-out refinance loan in comparison to a rate-and-term refinance.

Check Your Credit Score

If you have a good credit score, you can get a good interest rate. However, even if your score is poor, you can still refinance with an FHA, VA, or a USDA mortgage. That said, if your credit score is not too favorable and you don’t need to refinance right away, it actually makes sense to wait a few months and work on improving your credit score.

Gather Your Documents

Before you get in touch with different lenders, make sure you have the following paperwork in hand: bank statement for the last two months, pay stubs for the past months, W-2s for the last two years, contact numbers of your recent employers, retirement statements (if applicable), documentation of other sources of income, your current mortgage statement, a copy of your home insurance plan. Having these documents (and any other details lenders may need) ready will speed up the process.

Once this is done, you can start comparison shopping and opt for a refinance loan that suits you the best.