When to Refinance & Other Mortgage Refinancing Questions
Got questions about refinancing your home loan? We've asked a panel of home lending experts to provide the answers.
- Why Refinance?
- Is There a General Rule of Thumb for When it Makes Sense to Refinance?
- Once I Decide to Refinance, Where Do I Start?
- How Do I Find a Lender to Refinance?
- How Can I Determine if a Refinance Will Save Me Money?
- How Hard Is it to Refinance a Mortgage These Days?
- What Documents Do I Need to Refinance?
- What Credit Score Do I Need to Refinance?
- Can I Still Refinance if I Am Self-Employed?
- Can I Still Refinance if I Have a Few Late Payments on My Credit History?
- Should I Wait for Lower Rates Before I Refinance?
- How Much Equity Do I Need to Refinance?
- What if I'm Underwater on My Current Loan?
- Do I Have to Pay Any Upfront Fees to Refinance?
Comments have been edited for clarity.
9 Common Mistakes People Make When Refinancing—and How to Avoid Them
Not Shopping Around
If you fail to shop around and compare rates and terms, you could end up paying more than you should. Your refinance will probably be one of the biggest financial transactions of your life, so choosing the right mortgage and the right lender can save you thousands of dollars.
Opening New Credit Cards
If you are in the process of applying for a refinance, don't obtain additional debt. In other words, don't go out and buy, say, a car while a refinance application is pending. Taking on additional debt affects the ratios that lenders use to qualify you for the mortgage. Even if you fail to disclose the new debt, whether it be a credit card or a college loan, the lender will pick it up during the application process, and it will affect your ability to qualify. So once you start the refinance application process, don't apply for any new debt until after you close on the loan.
Not Gathering Required Documents Ahead of Time
Your lender will ask for a lot of documentation, including pay stubs, tax returns, the title insurance policy and more. Start gathering these documents before you apply for a refinance. The quicker you can provide all the necessary documents, the faster and easier your application process will be.
Failing to Get Accurate Quotes on Fees in Advance
Many times the quotes you get on the phone for closing costs are actually estimates because the lender may not be familiar with the particulars of your local area. It's not unusual for closing costs, title insurance premiums and even escrow amounts to be underestimated by lenders.
Choosing the Wrong Term
If you've already been in your home for five or six years, don't extend your term by refinancing into a new 30-year loan. Instead, refinance into a 25- or 20-year loan. Since interest rates have probably come down significantly since you took out the original mortgage, you may be able to keep your payment the same but shorten the term of the mortgage. Refinancing into a new 30-year loan when you have already paid down your mortgage for a number of years will cost you a substantial amount of interest over that term.
Not Paying Attention to the Appraisal Process
In most cases, an appraisal will be required when you refinance your mortgage. Obviously, you want your house to appraise for the highest price possible. That's why it's important to be present when the appraisal takes place and to cooperate and provide information to the bank's appraiser. Appraisers need to know about major upgrades to systems, renovations and additions. The more information you can provide your appraiser that helps him or her value the home as highly as possible, the better.
Failing To Check and Repair Your Credit Prior to Applying for a Mortgage Refinance
The interest rate on your new mortgage will be determined in part by your credit score. To expedite approval of your refinance, review your credit report and clean up any problems you discover.
Misrepresenting Facts on Your Refinance Application
It might be tempting to overstate your income, stretch out how long you've been working for an employer or say that you personally occupy your home when in fact you rent it out. Don't. Misrepresentation on a mortgage application is a violation of federal law and comes with hefty penalties. You'll be found out anyway because the lender will verify all information on the application.
Forgetting That Your Lender is Not Your Servicer
It's common for loans to be sold on the secondary market, to Fannie Mae, Freddie Mac or to a large bank. The lender that takes your application and manages the loan closing may not be the company you deal with over the life of your loan. When your loan is sold, you start a new relationship with the loan servicing company.
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