Determine The Goals of Your Refinance
The most important thing you need to consider before starting your journey is your goals. Many advantages would make you consider a refinance. Perhaps you want to get a lower monthly rate by lowering your interest rate. On the opposite end of the spectrum, maybe you want to up your monthly payments so you can decrease the length of your mortgage. A refinance may also be a good idea if you want to get cash from your home’s equity for emergency home repairs. Knowing what you want to achieve by a refinance can help you decide which type of loan is the best loan for you. Create a list of your top reasons and goals and keep them in mind as you search.
Do the Math
Once you know your goals, you need to pick up a guide to a refinance and learn about the options that could fit your needs. Many people look for a rate and term refinance because it allows them to lower their monthly payments, pay off their loans faster, or reduce their interest rates. Another option is a cash-out refinance, which lets you cash out on your equity.
Besides the type, you also want to consider the loan conditions, length, and other features. Then, pick out a few options and perform the math to see how the individual numbers affect your rates. This will give you an idea of what you will be paying after the refinance and how it will affect you in the long term.
Improve Your Finances
Depending on your financial situation, you may not be able to get a great loan option that helps you meet your goals. For instance, if you don’t have a good credit score, you won’t have access to better interest rates that contribute to a lot of savings while paying off your loan. Before applying for a loan from a reputable company, such as Axo Finans, you will want to improve your credit so you can get the loan you want.
It is also a good idea to clean up your finances ahead of time to keep your refinance schedule on time. If your credit is frozen, you will want to unfreeze it so that lenders can check on your score quickly. Additionally, clear up your outstanding tax issues before starting the refinance process. You should also decide if you can combine any equity loans on your home with your refinance or keep it separate. Be sure to tell your potential lenders about your decision at the start of your refinance to speed up any work on any necessary arrangements and give you more accurate numbers to think about.
Gather Your Paperwork
A refinance will require similar paperwork to purchasing a home. To make sure your process goes smoothly, gather all of your financial documents ahead of time. You will want to have 2 years’ worth of tax returns, at least 2 months’ worth of bank statements, 2 years’ worth of forms like W-2s and 1099s, and proof of other payments you regularly receive. If you own your own business, you will need to have 2 years of business tax returns.
Depending on the lender you choose, you may be able to upload these documents digitally, or you may have to send them hard copies. Either way, your documents will be promptly reviewed, and you may be asked for follow-up documentation based on what you provide.
Prepare Your Home
Like during your first mortgage, you will need to have it appraised to determine its market value. This value is crucial because it assesses your equity compared to your home’s current market value. If you have more equity in your home, you have a better chance of getting good interest rates. If you are looking to cash out your equity, this is especially important because it determines how much money you can get from the refinance.
An appraiser will examine similar homes, the size, features, and condition of your home to determine its value. While you may not be able to increase your home’s overall size before your refinance, there are some things you can do to increase its market value. For instance, you can make sure your home is up to date on all the safety codes, has working features, and is as large as you can make it. In fact, if you don’t address the safety issues, you could face a home inspection that can lead to more inspections, delays, fees, and loan ineligibility.
Once you have taken care of the structure, be sure to prepare it for the appraisal like you were showing it to a potential buyer. Make repairs and declutter your rooms. Make any cosmetic changes that could make your home more appealing. Keep a list of all the upgrades you have made to show it to the appraiser, and he can compare the features to similar houses.
While a refinance might seem stressful, preparing properly can simplify the process and lead to major rewards. By establishing your goals, doing your homework, and preparing yourself, you can find the right loan that will help you meet your needs. Be sure to follow these tips for a successful refinance experience that helps you meet your goals.