Refinancing your mortgage can save you thousands of dollars, but going through the process is enough to make anyone run for the hills.
Before you start refinancing, make sure you know what's involved. Read our tips below so you can have a stress-free refinance.
Step 1: Check Your Credit Report and Score
Before even beginning the refinance process, you need to check your free credit score and credit report. Lenders will use your credit report to gauge your creditworthiness, so you should access your credit reports to see if there are any negative or false statements on it. You can find your free credit report at annualcreditreport.com.
If you find anything incorrect on your report, make sure to contact both the creditor and reporting bureau so you can get it figured out before applying.
You can purchase your credit score when you look at your credit report. The better your credit score, the better deal you'll get. A score of 620 is often the minimum to receive a refinance, but a score of 740 or higher is usually necessary to get you the best offers.
Step 2: Compare Your Current Interest Rate to the Market Rate
Before you decide if a refinance is right for you, check to see what possible interest rates are out there. You can do this by doing a quick Google search for "mortgage interest rates" or by using this calculator to get a more customized figure.
If your current interest rate is higher than what's available on the market, you can start the process to refinance your home.
Step 3: See What Other Homes in Your Neighborhood Are Selling For
The first step in a refinance is to get your home appraised. The appraisal will help the lender determine if you have enough equity in your home to be approved for a refinance.
If other homes are selling for what you'd hope to earn for yours, your home will likely be appraised for the value you want.
You can do this by checking the county assessor's office, asking a local realtor or even doing a quick Google search for newly sold homes in your area.
Generally, you want to have a sense that your appraisal will go well, since it can cost a few hundred dollars to get your home's value. There's no point paying that money if you don't have enough equity in your home to qualify for a refinance.
Step 4: Call Your Current Lender to Ask for Their Quote
Before contacting other lenders, see if your current bank will make you an offer. They want to keep your business, so they may be willing to work with you on your refinance. Going through the lender you have now will likely be easier since they already have your information on file.
If your current lender is unable to match the market rate, then you'll have to apply with an outside lender. LendingTree can give you multiple quotes and offers to help you find the best rate and terms.
Step 5: Calculate the Fees
When receiving various quotes from mortgage lenders, make sure to not only the interest rates you see, but also the fees. Always ask what kind of fees they charge and to get their offer in writing. You don't want to find out that they charge more at the last minute.
Typical fees include origination fees, title insurance, recording services, settlement fees and a closing protection letter. The appraisal fee is also part of the package, but those are paid before the loan is final.
Lenders will have varied fees, so you want to compare the total closing costs to each other before choosing a final offer. Always ask lenders if fees are negotiable – you never know what they'll cut.