How to refinance your mortgage in 5 easy steps

Mortgage rates are at a record low – and it is simple to refinance your home loan. (iStock)

Do you think it’s time to refinance your mortgage? You are in good company.

Refinancing applications in the United States rose 6.8% in the week ending August 7, almost twice as much as a year ago, according to the Mortgage Bankers Association (MBA)’s Weekly survey on mortgage applications. Chalk up the refi incentive for record low mortgage rates: The average interest rate on a 30-year fixed mortgage has hovered below 3 percent in recent weeks, reports mortgage lender Freddie Mac.

You can Explore your mortgage refinancing options by visiting Credible.

If you’ve never refinanced a mortgage before, do not stress – refinancing your home is actually quite simple and can lower your monthly payments. Here are the five steps you take.

  • Step 1: Determine your financial goal
  • Step 2: Check your credit score and credit reports
  • Step 3: Collect your refinance application documents
  • Step 4: Shop around
  • Step 5: Sail through settlement

Read on to learn more about how these features can help ensure you are ready to refinance.

Step 1: Determine your financial goals

It is important to determine what your motive is and whether the cost of refinancing is worth paying out in the long run. You are likely to refinance for one of four reasons:

  1. To cut your mortgage payments. It may be a good idea to refinance to get a lower mortgage rate. In fact, about 15.6 million homeowners – or 30% of them with mortgages – could lower their monthly payment by $ 289 if they refinance at today’s rates, according to data provided to Yahoo Money by Black Knight, a loan research and analysis firm. You can use one online refinancing calculator to determine what your new monthly mortgage costs will be.
  2. To pay for your home faster. Refinancing can allow you to reduce your loan period – e.g. By switching from a 30-year mortgage to a 15-year mortgage – and paying off your home loan in less time. The warning: Paying off your loan faster usually means that your mortgage payments will increase.
  3. To stop paying private mortgage insurance. If you got a Federal Housing Administration (FHA) loan when you bought your home, you pay mortgage insurance (PMI) – a premium that typically costs 0.55% to 2.25% of your initial loan amount per year. Refinancing out of an FHA loan is the only way for you to stop paying PMI.
  4. To use your equity. You can also refinance to take cash out of your home in the form of one home equity loan (HEL) or a home equity credit line (HELOC). This is usually done to make improvements to the home, pay for college, consolidate debt, or make a down payment on another home.

You can Visit Credible to get pre-qualified mortgage refi rates in minutes without affecting your credit score.

HOW TO GET THE BEST REFINANCING AWARDS

Step 2: Check your credit score and credit reports

The average FICO score in the U.S. hit a record high of 703 in 2019, according to data from credit reporting agency Experian. But only borrowers with excellent credit scores – read: credit scores of 740 or higher – qualify for the best mortgage rates.

See if you qualify for lower rates with your current credit score – just paste your information into Credible’s free online tools to see loan options and offers within minutes without hurting your score.

You can get a free estimate of your credit score by visit myFICO.com. In addition, you are entitled to an annual free credit report from each of the three major US credit reporting agencies – Experian, Equifax and TransUnion – at AnnualCreditReport.com. Check your credit reports for errors that could drag your score down – one in four Americans in one Federal Trade Commission investigation said they saw errors in their reports.

5 FACTORS THAT AFFECT YOUR CREDIT SCORE

Step 3: Collect your refinance application documents

When refinancing, you are essentially applying for a new loan, which means you will be required to provide documentation to check your income, assets, debt and job history.

Here is a list of the most common documents you will need to complete a refinancing application:

  • Two years with W-2s
  • Two-year tax return
  • Two-month account statement for any savings accounts and asset statements
  • A list of your current commitments
  • A copy of your homeowner’s insurance policy

To streamline the application process visit an online marketplace as Credible, where the document upload process is automated and there are fewer forms to fill out to see more lenders.

WHEN SHOULD YOU FINANCY YOUR LOANS?

Step 4: Shop around

To ensure that you get the lowest mortgage rate that you are entitled to, it is crucial that you take the time to shop around and compare rates from multiple lenders. Rates can, after all, vary significantly from lender to lender.

You can compare lenders and refinancing rates by visiting Credible.

Everything you need to know about refinancing your mortgage

Step 5. Sail through settlement

Settlement or “closing” is the last step in the mortgage financing process. This is where you sign the final paperwork to get your new loan.

You need to bring a few things to close:

  • A government-issued photo ID, such as your passport or driver’s license.
  • Proof of homeowner’s insurance.
  • A cashier’s check from your bank or a receipt from a bank transfer for any outstanding closing costs. In general, closing costs on a refinance will vary from 2 to 6% of your new loan amount.

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