6 Tips for Successful Mortgage Refinance Application

Mortgage plays a very important role in our lives. Without them, most first-time home buyers couldn’t buy their properties and make deposits for the future. But, much like any other loan, this financial aid tends to become quite a burden as time goes by.

So, it is really no wonder that a lot of people, whether they are trying to shorten the mortgage terms or lower the interest rates, decide to use the benefit of mortgage refinance.

But, even though the option of mortgage refinance offers numerous benefits, this step shouldn’t be approached lightly and entails numerous setbacks if not performed with due diligence.

Let us take a look then at a couple of tips that should help you use this tool to your benefit.

Check the equity of your home

Essentially, the term home equity describes the value of the home owner’s interest in the home, or, in other words, if the property’s market value is less than the liens attached to that property. The thing is the amount of equity in the house fluctuates over time as payments are made on the mortgage. If, for instance, the property now is worth less than when you begin paying off the mortgage (negative equity) it really doesn’t make sense to refinance the mortgage so you should simply go along the way you were.

Boost your credit score

A credit score is one of the most important factors in deciding whether you are going to get any form of a loan. That includes mortgage refinance loans as well and the credit score the lenders will like to see before they strike the deal with you is approximately 760 or higher. If you are, at the moment, unable to qualify for the loan, you may try to improve your credit score by getting a handle on the bill payments, keeping your credit utilization rate below 30%, consolidating existing debt, and, avoiding new credit card purchases.

Research the cost of refinancing

In other words, you should shop always shop around. You should always keep in mind that different lenders can offer drastically different services. So, if you want to refinance mortgage with the best possible terms, you should spend some time researching the options you have on the table. In most cases, refinancing costs will sit between 3% and 6% which is a margin you should definitely take into consideration. Also, you may even get a ‘no-cost’ refinance and pay only a slightly higher interest rate.

Check your debt-to-income ratio

The credit score isn’t the only factor your future lenders will consider when deciding whether you are qualified for refinancing a loan or not. Over the last couple of years, lenders have become especially picky about DTI (debt-to-income) ratios. Therefore, even if you have a high credit score, good and stable income, and consistent job history, the lenders may decide to reject your application if your monthly payments exceed 28% of your gross monthly income. Down payments can go a long way in solving this issue.

Rates and terms

Essentially, unless you find some truly extraordinary lender, you can’t get favorable terms in both these areas. So, before starting your search, you should really sort out what your priorities actually are. If your overall goal is to reduce your monthly payments and DTI ratio, you should look for lenders that offer the longest possible repayment terms. If you want to move this issue off the table as soon as possible, you should look for shorter terms. But, in any of the cases, you need to be clear about your priorities.

Get paperwork and budget in order

Last but not least, we would like to remind you that applications for a mortgage refinance services usually requires a lot of paperwork. Failing to prepare the documents like federal tax returns, bank statements, and recent pay stubs prior to application can only needlessly prolong and set back the entire process. Also, you need to keep in mind that most mortgage lenders will usually require a refinance appraisal (between $300 and $500) to approve the application so make sure you have these funds prepared as well.

So there you have it – the top six tips and considerations that should make your next mortgage refinance application successful. As we can see, this process entails quite a lot of things to consider so be sure to approach the issue with all due diligence. Mortgage finance is an incredibly useful tool that can solve countless financial problems but only if used carefully and considerately. Keep then in mind everything we have talked about earlier and make any concerns regarding the mortgage repayment a thing of the past. 

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