If you’re like most homeowners in America, you most likely had to take out a mortgage to pay for your home. A mortgage is a loan that helps you buy a house, and your mortgage lender will tack on an interest rate on top of your loan amount for their risk of lending you money.
Interest rates are never fun, as they increase the total amount of money you owe, which is why you want a mortgage with the lowest rate possible. That’s where refinancing comes in. Refinancing a loan is where a lender pays off your existing loan and replaces it with a new one, typically with a better interest rate and loan terms. There are many types of loans you can refinance, such as your car loan or student loans. However, today, we’re going to talk about refinancing your mortgage.
It’s important to know what to expect when you refinance your mortgage, as it can save you both time and money. Below, you’ll find 8 refinance tips that can make getting a new mortgage loan easier than ever. Or, use the provided links to jump to a refinance tip that interests you.
- Determine Why You Want to Refinance
- Remove Errors On Your Credit Report
- Have Your Financial Documents Readily Available
- Work On Building Your Credit Score
- Choose The Right Lender
- Lock Your Interest Rate
- Anticipate Closing Costs
- Prepare Your Home For Appraisal
1. Determine Why You Want to Refinance
There are many reasons why you may want to refinance your mortgage. Determining this reason will help you save time and money because you’ll be able to go to your lender with a clear plan of action.
<img data-attachment-id="5438" data-permalink="https://mint.intuit.com/blog/how-to-budget-for-a-bathroom-remodel/" data-orig-file="https://blog.mint.com/wp-content/uploads/2014/02/How-to-Budget-for-a-Bathroom-Remodel.jpg" data-orig-size="554,317" data-comments-opened="1" data-image-meta=""aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"" data-image-title="How to Budget for a Bathroom Remodel :: Mint.com/blog" data-image-description="
How to Budget for a Bathroom Remodel :: Mint.com/blog
” data-medium-file=”https://blog.mint.com/wp-content/uploads/2014/02/How-to-Budget-for-a-Bathroom-Remodel.jpg?w=300″ data-large-file=”https://blog.mint.com/wp-content/uploads/2014/02/How-to-Budget-for-a-Bathroom-Remodel.jpg?w=554″ loading=”lazy” class=”size-full wp-image-5438 aligncenter” src=”https://turbo-blog.ctgop-prod.a.intuit.com/wp-content/uploads/2020/02/Artboard-2.png” alt width=”640″ height=”453″>
Some of the main reasons why you may consider refinancing your loan include:
- Getting a lower payment: Mortgages can be expensive, especially if you’re living in an expensive home. If you’re struggling to make your payments, refinancing can help by switching you to a longer term with lower monthly payments.
- Paying your loan off faster: As we mentioned, your mortgage lender charges interest for lending you money, which increases the amount of money you owe on your home over time. If you’re in a better financial situation today than you were when you took out a mortgage, refinancing can shorten your term, saving you money in interest.
- Securing a lower interest rate: If your current mortgage has a high interest rate, you can find a lender with a lower interest rate and refinance. This can save you thousands of dollars in interest payments in the long run.
- Getting a cash-out refinance: If you want to make home improvements, add more money to your retirement savings account, or pay off debt, a cash-out refinance will replace your current mortgage loan with a higher mortgage loan. The difference between the two loans will be sent to you in cash, giving you free rein over how you use it.
- Removing mortgage insurance: If you have an FHA loan and put down less than 20%, you most likely have a mortgage insurance premium (MIP) built into your monthly mortgage payment. If you hit 20% equity, you can refinance your FHA loan into a conventional loan and remove your MIP.
Once you’ve determined the reason you want to refinance and improve your loan, search for a lender. There are plenty of lenders who specialize in different types of refinancing, so match one who meets your needs.
2. Remove Errors On Your Credit Report
This refinance tip is arguably the most important when it comes to saving money when you get a refinance. Your credit score shows lenders your ability to pay back lent money. A credit score that’s too low will show lenders you may be a risky investment and will tack on a higher interest rate. A high credit score will show lenders you’re trustworthy and will most likely make your monthly payments on time, giving you a lower interest rate.
If your credit report is riddled with errors, it’s time to take action. You can get a free credit report with Mint to closely track your credit score to ensure no errors are holding you back from an attractive new home loan.
Some common credit reporting errors you can dispute include:
- Incorrect personal information: If your credit bureau misspells your name or has the wrong address, Social Security number, or employment information, your credit score can drop. Contact your reporting bureau if you notice any inaccurate personal information.
- Accounts listed as “closed by lender”: If you have an account that you closed voluntarily and is listed as “closed by lender” on your credit report, your credit score could lower.
- Bad debts: Bad debts that you fail to pay back can make your credit score drop significantly. However, credit reporting bureaus must remove negative items, such as missed payments, after 7 years. If they’re not removed, contact the three main credit reporting bureaus.
- Duplicated negative marks: Your credit score can suffer if an account with the same negative items appear more than once.
It’s important to check your credit score regularly. If you notice any errors on your credit report, contact the credit reporting bureau that issued the report and solve the error. There are three major credit reporting bureaus, TransUnion®, Equifax®, and Experian™. You must contact each individually if there’s an error on your credit report.
3. Have Your Financial Documents Readily Available
When you apply for a refinance, you’re going to want to prove to your lender that they can trust you to make your monthly payments on time. You can prove your responsibility by gathering all of your financial documents needed for your application. Documents your lender will most likely ask for include:
- Two of your most recent W-2 Forms
- Two of your most recent bank statements
- Two of your most recent pay stubs
If you’re applying for a refinance with someone else, such as your spouse, your lender will ask for their information as well. And for those of you who are self-employed, be prepared with your full tax return and other documentation that verifies your income.
Being prepared with all of the right forms and documents will help you refinance much quicker. To stay on schedule, make sure you stay in constant contact with your lender and respond to any requests for additional information during underwriting as soon as you can.
4. Work On Building Your Credit Score
As previously stated, your credit score is one of the most important factors that determine the rate and term of your refinance. A low credit score will cost you more money in the long run because your lender will most likely place a higher interest rate on your new home loan.
<img data-attachment-id="5439" data-permalink="https://mint.intuit.com/blog/5-reasons-credit-cards-get-a-bad-rap/" data-orig-file="https://blog.mint.com/wp-content/uploads/2014/02/5-Reasons-Credit-Cards-Get-a-Bad-Rap.jpg" data-orig-size="554,317" data-comments-opened="1" data-image-meta=""aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"" data-image-title="5 Reasons Credit Cards Get a Bad Rap :: Mint.com/blog" data-image-description="
5 Reasons Credit Cards Get a Bad Rap :: Mint.com/blog
” data-medium-file=”https://blog.mint.com/wp-content/uploads/2014/02/5-Reasons-Credit-Cards-Get-a-Bad-Rap.jpg?w=300″ data-large-file=”https://blog.mint.com/wp-content/uploads/2014/02/5-Reasons-Credit-Cards-Get-a-Bad-Rap.jpg?w=554″ loading=”lazy” class=”size-full wp-image-5439 aligncenter” src=”https://turbo-blog.ctgop-prod.a.intuit.com/wp-content/uploads/2020/02/graphic-3-2.png” alt width=”640″ height=”457″>
- Pay on time, every time: Creating a long history of timely payments is a great way to boost your credit score. It shows you’re reliable and responsible and know how to budget properly to pay back lenders on time.
- Reduce your credit utilization: Your credit utilization is the amount of total available credit you use each month. A general rule of thumb is to use 30% or less of your total available credit each month. Why? Because putting too many purchases on credit can increase the likelihood of you missing a payment. To reduce your credit utilization, create an effective budget, use cash or debit when you can, and cancel automatic-renewal subscriptions that aren’t a priority.
- Don’t close old credit cards: Contrary to popular belief, closing old credit cards can actually lower your credit score rather than raise it. This is because closing a credit card can increase your total credit utilization. Instead, you could store your old credit card in a desk or a safe where you won’t be tempted to use it as often.
When your score is high, then you may want to consider applying for a refinance. Avoid opening any new lines of credit at least 2 months prior to your refinance, as hard credit checks can temporarily lower your score.
5. Choose The Right Lender
<img data-attachment-id="5440" data-permalink="https://mint.intuit.com/blog/resume/" data-orig-file="https://blog.mint.com/wp-content/uploads/2014/02/9-Things-to-Remove-From-Your-Resume-Right-Now.jpg" data-orig-size="554,318" data-comments-opened="1" data-image-meta=""aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"" data-image-title="9 Things to Remove From Your Resume Right Now :: Mint.com/blog" data-image-description="
9 Things to Remove From Your Resume Right Now :: Mint.com/blog
” data-medium-file=”https://blog.mint.com/wp-content/uploads/2014/02/9-Things-to-Remove-From-Your-Resume-Right-Now.jpg?w=300″ data-large-file=”https://blog.mint.com/wp-content/uploads/2014/02/9-Things-to-Remove-From-Your-Resume-Right-Now.jpg?w=554″ loading=”lazy” class=”size-full wp-image-5440 aligncenter” src=”https://turbo-blog.ctgop-prod.a.intuit.com/wp-content/uploads/2020/02/shutterstock_1063889201.jpg” alt width=”640″ height=”427″>
Shopping around for the right lender can save you money in the long run. Don’t feel like you need to refinance with the same lender that issued your original mortgage. Doing your research and scouting out lenders and their fees, interest rates, and availability can help you find a refinance deal you’re happy with. Use a refinance calculator to calculate your monthly payment and review your loan options.
To make things easier, note each lender’s answers in a chart to compare later. This can help you make the best decision.
6. Lock Your Interest Rate
Another refinance tip you should be aware of is the fact that you can lock your interest rate. Depending on market trends, interest rates can fluctuate, so it’s important to lock your rate if you’re happy with it or risk the chance that it increases before you close on your loan.
<img data-attachment-id="5441" data-permalink="https://mint.intuit.com/blog/tourist-holds-up-camera-phone-at-eiffel-tower/" data-orig-file="https://blog.mint.com/wp-content/uploads/2014/02/Consumer-Secrets-From-the-Worlds-Greatest-Traveler.jpg" data-orig-size="554,317" data-comments-opened="1" data-image-meta=""aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"" data-image-title="Consumer Secrets From the World’s Smartest Traveler :: Mint.com/blog" data-image-description="
Consumer Secrets From the World’s Smartest Traveler :: Mint.com/blog
” data-medium-file=”https://blog.mint.com/wp-content/uploads/2014/02/Consumer-Secrets-From-the-Worlds-Greatest-Traveler.jpg?w=300″ data-large-file=”https://blog.mint.com/wp-content/uploads/2014/02/Consumer-Secrets-From-the-Worlds-Greatest-Traveler.jpg?w=554″ loading=”lazy” class=”size-full wp-image-5441 aligncenter” src=”https://turbo-blog.ctgop-prod.a.intuit.com/wp-content/uploads/2020/02/Graphic-2-2.png” alt width=”640″ height=”477″>
When you’re applying for your refinance, ask your lender if locking your interest rate is free or comes with a fee. You can also ask how long you can lock your interest rate—most lenders grant you 30 – 90 days. You can also explore your state’s interest rates at ConsumerFinance.gov to ensure you’re getting a fair rate.
However, be aware that locking your interest rate can come with a few drawbacks. If interest rates drop, you may feel as if you wasted money as you can’t take advantage of the lower interest rate. Additionally, depending on your lender, locking your interest rate past a 45-day window can be expensive. Make sure you take time to talk with your lender to determine whether locking your interest rate works for your financial situation.
7. Anticipate Closing Costs
Sure, your new loan may seem like a good deal, but did you forget about all the other costs and fees associated with getting a new home loan? It’s important you anticipate closing costs when you apply to refinance, as these can add up rather quickly.
Some closing costs you should be aware of include:
- Attorneys’ fees
- Title insurance and title search expenses
- Application fee
- Inspection fee
- Appraisal fee
- Discount points
It’s common that most closing costs will range between 2% – 3% of your total loan value. Depending on your lender, you might have the option to roll these costs into your loan. But be aware, doing so will increase the amount of your loan, which means you’ll be paying more in interest over the lifetime of your loan.
Anticipating closing costs and having the money upfront to pay for them out of pocket will save you time and headaches.
8. Prepare Your Home For Appraisal
The final refinancing tip is to prepare your home for appraisal. Many lenders will ask you to get an appraisal when you apply for a refinance to determine how much your home is worth. Luckily, there are a few tricks you can use to increase the value of your home:
- Create curb appeal: First impressions mean everything, which is why the appearance of the exterior of your house is important. Spruce up the outside of your home by planting flowers, mowing the lawn, painting your front door and trim, and so forth. These are all low-cost updates that can boost the value of your home.
- Make valuable updates: Low-cost projects can significantly increase the value of your home. A fresh coat of paint, new windows, an outdoor patio, and new ceiling lights are all minor upgrades that can increase your property’s value.
- Keep track of your upgrades: It’s also important that you keep track of your upgrades. Take before and after pictures and keep all receipts. When the appraiser comes, show them your list of home improvements before the tour begins to demonstrate how you improved your home.
- Set the stage: Adding a wow factor to your home may leave a lasting impression on your appraiser. Make sure you stage the inside and outside of your home by polishing the floors, cleaning up the bedrooms and bathrooms, decluttering common spaces, lighting a scented candle, and setting the thermostat to a comfortable temperature. These tweaks can make a world of difference.
- A few updates here and there can improve your home’s value significantly. Taking time to spruce up your home can improve your chances of a successful appraisal before the appraiser even arrives.
Our list of refinancing tips can save you time and money. To start your journey to a new home loan, sit down and determine why you want to refinance. Whether it be to lower your interest rate or get a lower payment, this will help you find a lender that will work for you.
- Improving your credit score is one of the most important refinancing tips we have to offer. You can improve your score by removing errors from your credit report, paying balances on time, and reducing your credit utilization.
- Be prepared for your meeting with your lender. To successfully secure an attractive refinancing offer, bring your most recent W-2s, bank statements, and pay stubs.
- Choosing the right lender that offers the best terms and interest rate will save you money in the long run. You may also want to consider locking your interest rate to avoid fluctuations until closing that can cost you more money.
Anticipating closing costs and doing your best to pay for them upfront can save you money by not adding those costs to your loan. Finally, lenders often ask for an appraisal of your home, so prepare your home with low-cost updates to increase its value. Still have more questions about refinancing? Check out this refinance guide to learn more.
Learn more about security