Introduction
If you are paying a high interest rate on your mortgage or you want to borrow against your equity in order to pay for home improvements, college tuition, a vacation or another large purchase, a mortgage refinancing home loan might be the best way to do it. You can refinance your mortgage through the bank or mortgage company you currently use, or you can find another bank or mortgage company to finance the new loan. Here are six tips to help you understand what you need to know before you apply for your mortgage refinancing:
1. You’ll need good credit for most mortgage refinancing home loans. It’s a good idea to get your credit report before you start shopping for a loan so that you can identify mistakes or pay off late bills or bills that are in collection before you apply for your loan. The better your credit is, the better chance you have to getting approved for your mortgage refinancing home loan and the more likely you will be to get a good interest rate.
2. There are several kinds of mortgage refinancing home loans. A home equity loan allows you to borrow against the equity you have in your home and receive your loan money in one lump payment. A home equity line of credit puts your loan money into an account that you can draw from as you need the cash. You will pay interest on the amount you have borrowed, not the whole amount of credit the lender has extended to you. A cash-out refinance pays off your first mortgage and becomes your new first mortgage.
3. You’ll need a lot of documentation for your mortgage refinancing home loan application. You must convince your mortgage lender that you will be able to repay your loan on time. In order to do that, you will have to submit financial documentation with your loan application. This documentation includes pay stubs from your job, tax returns from the last two or three years, bank statements from the last several months and statements for other accounts you have, such as retirement accounts or investment accounts at a brokerage.
4. It pays to shop around for a mortgage refinancing home loan. Different banks and mortgage companies have different interest rates and different loan features. Call several different lenders or visit their websites and list the interest rate and loan features and requirements so that you can compare them. One might have better interest rates, while another has no closing costs, for example.
5. You can negotiate an interest rate. Banks and mortgage companies set their own interest rates, even if they offer loans through government programs such as the Federal Housing Administration. You can ask for a lower rate.
6. It can take several weeks for your mortgage refinancing home loan to close. If you must borrow money for an emergency, you may need a different source of cash for a few weeks. You can help your loan close as fast as possible by having all of your financial information ready before you apply, and then following your mortgage consultant’s instructions carefully. Often, loans are held up because the borrower has forgotten to hand in a document.
