Refinancing your home mortgage isn't actually all that difficult. Still, savvy homeowners naturally want to know how to make refinancing easier than easy. Here are some tips:
1. Raise Your Income, Lower Your Debt
You don't need to be a big earner to refinance, but you will need enough income to satisfy the lender that you can manage your monthly debt obligations, such as minimum credit card, car loan or student loan payments.
Lenders use a calculation called a debt-to-income ratio, or DTI, to measure whether you're stretched too far. If you are, you'll need to increase your income or reduce your debt to refinance.
Ways to increase your income might include a pay raise, side gig, second job, passive income or co-signer. You'll need to document that your additional income is stable and consistent.
Ways to decrease your debt might include using savings to pay off loan balances, limiting new credit card charges or applying for an income-based student loan repayment plan.
Once you start the refinancing process, don't add to your debt with new loans.
2. Increase Your Equity, Lower Your Loan Amount
If you bought your home with a low or zero down payment loan, your home has declined in value or you previously refinanced or got a second loan and took out cash, you might not have enough equity to refinance.
One solution is to apply for a so-called streamline refinance that doesn't require an appraisal.
Another option is to refinance with mortgage insurance, which allows you to get a loan without much equity. Mortgage insurance may increase your payment, so you'll have to do the math to see whether it makes sense for you.
Another solution is to cash in, using other financial resources to lower your loan amount. You can also make extra mortgage payments or pay additional money toward principal when you make your regular monthly payment.
3. Improve Your Credit
You don't need perfect credit or a super-high credit score to refinance, but if your credit is only middling, lenders won't offer you their best interest rates. That can make refinancing less attractive.
One solution is to establish a better track record of paying your bills on time. You should also review your credit reports and make sure any errors are corrected.
4. Let Your Lender Help You
There are many types of home loans. These loans can be complicated and there usually are a lot of nuances most borrowers don't know about. A knowledgeable lender can tell you how to make refinancing easier and help you figure out a strategy that makes sense.
Once you've started the refinancing process, submit all of your documents and respond to your lender's questions about your finances as soon as you can. Delays can stall, restart or even stop the entire process.
Your lender can also tell you how much your new payment will be, how much cash you might be able to take out and how much money, if any, you'll need to close your loan and answer any other questions you might have to make refinancing easier for you.