If you bought your home when interest rates were high, you may be contemplating refinancing when interest rates are low. By lowering the interest rate on your loan, you could drop the amount of your monthly payment. Refinancing a home loan is a lot like applying for a new mortgage. You'll have to submit documentation and qualify for the loan and lower interest rates through a company like Tennessee Home Mortgage. Here are some things to know about a home loan refinance.
Your Credit Score Matters
Your credit score determines the interest rate you'll receive. If your goal is to get the lowest rate possible, you'll want to get your credit in good shape before you refinance your home. You should check your score regularly to make sure it has no errors and to see how it fluctuates. Pay down your credit card balances before you apply for the refinance loan, and avoid applying for new cards or loans.
Another reason to pay down your credit card balances is so you'll have a favorable debt-to-income ratio, which is an additional factor that lenders consider. You might still qualify for a home refinancing loan with less than stellar credit, but your interest rate will be higher so you might not see the savings you desire on the loan.
The More Equity You Have, the Better
You'll need equity in your home to refinance it, and the more you have, the better it will be. If your home mortgage is upside-down or you have very little equity, you may need to come up with the cash difference in order to qualify for refinancing. This might not be possible if you need to refinance to avoid a foreclosure.
If a foreclosure is looming, you may want to try for a loan before you miss a payment, because missed payments on your old mortgage could disqualify you for refinancing. If you have equity in your home, then you might be able to arrange a longer term for your refinance loan, which would further reduce your monthly payment, but it will also extend the life of your loan and the total amount you have to pay off.
You'll Need Documented Proof of Your Finances
There are many variables involved in a refinance loan. It's every bit as involved as a first mortgage, so be prepared to submit documents that prove your employment, debts, appraised home value, and finances. You may want to discuss getting a loan with a refinancing service before you actually apply so you'll know for sure what you'll need and that your credit is in order. This could be the ideal time to refinance, or you may need to wait until you build more equity or improve your credit to get the lowest interest rate.
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