Home Refinancing Mistakes and Tips
Mortgage rates fell quite a bit this year, even though some of the recent months have seen a big decline. This has made sure that the rates for mortgages are low, allowing homeowners and potential buyers to get fantastic rates on the homes that they want to purchase.
When these rates are low, the refinance rates are going to be high. Many homeowners see this as a great time to refinance their mortgage at a lower rate. While this can be a good idea for some homeowners, there are some mistakes that homeowners may make that can ruin the whole process. Some of the common refinancing mistakes homeowners should watch for are:
Failing to Do Your Homework
Before you go through refinancing, you need to get a good idea of the worth of your home. You can do this by talking with a real estate expert or looking at some home-valuation sites. This gives you a good idea on what your home is worth and if you are able to refinance at all. just remember that some of the sites are going to be off on the estimate so look at more than one.
Another thing to do is local mortgage market research. This helps you to find the best mortgage company for your refinance. Look at the potential mortgage rate, the closing costs, and the new monthly payment before anyone pulls the credit. It just takes some time and effort.
When you are armed with this information, you will be able to get started on the refinance. You can pick the lender who is the best for you. This will help you get the best rate and make sure the refinance goes well.
Opening New Accounts and Taking on Debt
Lenders check the credit of all applicants when they do a refinance and most are going to do another check before the settlement. Making a big purchase on your credit card or applying for more credit can lead to delays in the process because it is a big change to the credit profile and in some cases, it can mean you are declined for the refinance.
Each time you decide to open a new account, your score can drop a bit. Lower scores mean that you have a higher mortgage rate, reducing or even eliminating the value of the refinance. Once you start the application, leave the credit alone. Your goal is to just spend as little as possible and not take out more credit.
Low Credit Score
You need to be careful about your credit when you apply for a refinance. This process is similar to working with a traditional mortgage. And a credit score that is higher is going to make a big difference in the rates you are able to get or even if you can get the refinance in the first place.
It is a good idea to order your personal credit reports from the three major bureaus before you apply. You are entitled to get a free one from each of these each year. This helps you to catch any wrong information on the report and determine if you are safe before you do a refinance at all.
Shop for Mortgage Rates
All homeowners need to do some shopping to find good mortgage rates. It is more convenient to simply refinance with your current lender because they already have a lot of the information about the home. You can just send some updated documentation to get the work done. But this can be a costly mistake to make.
Your current lender may not provide the best discount or deal out there at the time. Sometimes they can, but it is not guaranteed. With a little bit of shopping around, you may be able to find a lender who is able to provide a lower rate compared to your current lender. Check with various lenders on the same day to make sure you get the best mortgage possible.
Not Factoring Your Refinance Break Even Point
Another thing that you should do is calculate the breakeven point to see whether doing a refinance is a good option. You need to see how much you are going to save each month and what the refinancing closing costs will be.
If you have closing costs at $4000 and you plan to save $100 per month, your breakeven points will be 40 months before you actually save money. That can be a long time for most people, and they need to determine whether that is a smart decision for them. In some cases, it may not be worth doing the refinance unless you plan to be there a long time.
Not Locking in Mortgage Rates
Since it is possible for a mortgage rate to change often, make sure that you and the lender are clear about when the rate is actually locked in. Most companies will do a rate lock at 30, 45, or 60 days.
While it is possible that the mortgage rates are going to dip again, it is really just a big gamble. It is possible for the rates to drop, but waiting too long can potentially backfire and leave you with a higher rate. It may be enough for the refinance to no longer be beneficial to work with.
It takes some time to get the refinance approved, so make sure that you require all of the documentation as quickly as possible. If you drag the feet a bit and do not get the paperwork in on time, it is possible to extend the rate lock, but it is going to cost you.
Choosing to Refinance Your Home
Refinancing your home can ensure that you get better rates on the home and that it is more affordable overall. Before you jump in, do some research to make sure that everything works in your favor. Check out some of these common mistakes above and then get started on your refinance today!