Refinancing a mortgage is a terrific way to improve your financial situation, and with the many refinancing loans available, now is a great time to talk to your lender. Read on to learn more about how a mortgage refinance works so that you’re prepared to get the best loan available.
What is a Mortgage Refinance?
A mortgage refinancing loan replaces a home loan with a new home loan. The new home loan pays off the old mortgage, and the borrower begins paying off the new loan.
What Are the Benefits of Refinancing?
The primary reason to refinance your mortgage is to improve your financial position. Getting a brand new mortgage makes sense if you want to achieve one of the following goals:
- Move from a fixed rate to an adjustable rate mortgage and vice versa
- Shorten the length of the mortgage
- Lower interest rate
What do you want to achieve with a refinanced mortgage? You need to decide what you want to get out of a new home loan because it impacts the type of mortgage refinance that fits your needs.
Are There Any Downsides to Refinancing?
A potential downside is that you might extend your mortgage payments to lower your monthly mortgage bill. You could end up trying to begin rebuilding equity in the house.
There are significant costs involved in refinancing your home loan. Make sure that the benefit of refinancing surpasses the financial fees before you agree to refinance your mortgage.
Do You Need to Use Your Original Lender to Refinance?
No. You might want to contact your current mortgage lender to check on the refinance options that the lender can offer. However, you might also find better loan opportunities with another lender.
Homes for Heroes partners with loan specialists nationwide who are familiar with a variety of home loans, and can help you find the one that best fits your situation. What’s more, these loan specialists have committed to providing discounted lending fees to firefighters, law enforcement, military (active, reserve and veterans), healthcare workers, EMS and teachers. Let us connect you to a local Homes for Heroes lending specialist in your area that can answer your questions and put you on the road to a home loan that best fits your situation while saving you money.
Do Lenders Require a High Credit Score to Refinance a Mortgage?
Lenders put a lot of emphasis on your credit score when they determine how risky it may be to give you a loan. A credit score, also known as a FICO score, is a number that constitutes your current credit situation. The common credit reporting agencies, Equifax, Experian, and TransUnion, examine your credit history and come up with a FICO score.
A credit reporting agency uses credit data from sources such as your payment history, type of credit, how much you owe, and how long you’ve been paying your lenders, to determine your credit score. FICO scores range from 300-850, and lenders reserve their best interest rates and loan terms for borrowers with a credit score higher than 740. Borrowers struggling with credit scores lower than 600 might find that they are unable to obtain a conventional loan.
Although your credit score is a critical factor in getting the best loans, remember that many people obtain loans with less than stellar credit. A Homes for Heroes affiliate loan specialist is very experienced at locating home loans for people with a broad range of credit scores.
FICO scores range from 300-850, and lenders reserve their best interest rates and loan terms for borrowers with a credit score higher than 740.
What Other Factors Does a Lender Consider?
In addition to your credit history, lenders want to know how much equity you have in your home, along with your mortgage payment history. Many lenders require a borrower to have at least one year of payment history on their current mortgage before refinancing. Financial institutions also often expect the borrower to have more than 20% equity in their house. Borrowers who have a mortgage of greater than 80% might need to pay money up front to be eligible for a mortgage refinance.
Also, your lender wants to make sure that you can pay your mortgage on time. It’s often beneficial to present proof that you have a stable job. Don’t hesitate to offer your lender a letter from your employer stating that you are likely to be employed for at least one more year.
Do Lenders Require a New Home Appraisal?
It’s possible that your lender might order a new appraisal to determine the current value of your home. There are some cases, such as with a VA loan, where an assessment may not be necessary. However, it’s a safe idea to prepare for a possible appraisal before you begin the refinancing process.
Here are some tips to ensure an excellent valuation of your home.
- Mow the lawn and pull any weeds
- Clean and declutter each room
- Test the smoke detector and carbon monoxide detector
- Make necessary gutter and roof repairs
- Maintain heating, electrical, air conditioning, and plumbing systems
- Repair broken appliances
The licensed appraiser also considers the value of comparable homes in your area when figuring out how much your house is worth. Provide information on any recent home sales in your area. Appraisers also appreciate homeowners who give them written evidence of regular home maintenance and permits for any home renovations.
Experts also suggest that you request that your lender use a locally licensed appraiser to perform the appraisal on your house. An experienced appraiser in your community understands the local real estate market and is in a better position to appropriately value your property.
If your lender doesn’t order an appraisal and you are unhappy with the decided value of your house, you can often pay for an independent examination to argue for a better valuation. Don’t be afraid to fight for a higher home evaluation.
Lastly, refinancing your mortgage is a powerful money tool available to many homeowners. A smart refinance accomplishes your financial objectives, such as a lower monthly payment, and strengthens your ability to accumulate wealth. For additional information about how a mortgage refinances can benefit you, SIGN UP to speak with a Homes for Heroes affiliate loan specialist in your area. They will be able to answer your questions and help you refinance your mortgage while saving you money.