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4 Actions to Take Before Refinancing Your Home

Last Updated

June 26, 2020

Written By

First Family Credit Union

How to Make Your Refinancing Process Easy

Refinancing your home can reap several benefits such as a better mortgage rate, lower monthly payments, shortening your term, and more. Although this is the case, every borrower has a different reasoning behind refinancing their home.

What is a Mortgage Refinance?  

A mortgage refinance is when a homeowner replaces their current mortgage with a new one in order to obtain a lower better interest rate and term. In order to replace the current mortgage, borrowers must pay off the first loan, instead of creating a completely new mortgage and discarding the previous one. Here are some helpful tips and best practices to take into consideration during the refinancing process. 

Tips to Preparing Your Home for Refinancing 

1. Know Your Credit Score  

Knowing your credit score is one of the first steps before refinancing your home. Your credit score determines what loans you qualify for and how much interest you will be paying on those loans. Find your credit score by looking at your credit reports. Make sure that there are no mistakes or discrepancies before you apply for a refinance. Any mistakes can lower your score and affect the chances that you have of a refinance.  

2. Identify Your Home Equity 

Your home equity is the difference between the worth of your home and how much you owe on your current mortgage. Equity is built each time you make a payment on your mortgage loan. Determining your equity is important to know if you’re looking for a cash-out refinance because most lenders will typically loan out 80-90% of your home equity maximum. Homeowners tend to choose cash-out refinancing in order to pay off their debt or cover their repair costs.  

3. Get a Quote   

The rule-of-thumb is that you should get a quote from at least three lenders. It costs a significant amount of money to refinance your mortgage, so shop around to find the best deal. Check out different lender reviews and seek advice from friends, family members, and neighbors. When you’ve found a lender you want to use, remember to ask the following questions: 

  • What are the refinance qualification guidelines? 
  • What type of refinance plans do you offer? 
  • How much are the closing costs for refinance? 

4. Prepare for Your Home Appraisal 

You will need a lender to identify your home’s current market value. This is because your home must defend the loan amount you’re looking to obtain. It is the collateral for your mortgage and can determine how much equity you have in your home. The better your home equity, the more lenders will loan out to you. To make the most out of your appraisal, be sure your home meets the safety regulations that are required such as having a fire alarm and carbon-monoxide monitor. Prep your home as if you’re showing it for the first time. 

 

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