Thinking about Refinancing? Here are a Few Tips from Our Experts
One of the biggest mistakes some homeowners make when refinancing their mortgage loan is failing to shop around. Most people shop to get the best deal on a new car, airfare, even furniture; doesn’t it make sense to compare costs and features on mortgage refinance loans, considering your mortgage will likely be the biggest expense of your lifetime?
Where to Start?
Before you apply for your new mortgage, you should first check your credit for any mistakes or outdated information. A recent federal law allows consumers to receive a free copy of their credit bureau report each year. Review your report, and make any change requests directly with the credit reporting agency. Start this process at least a month prior to applying for your new mortgage, as the credit reporting agencies can take up to 30 days to make necessary changes to your file.
Once you’re certain your credit file is in order, make sure you have copies of the following documents, which may be needed to close on your new mortgage loan.
- Copy of the most recent month’s pay stubs.
- W-2 forms for the last 2 years.
- Proof of assets, including checking and savings account statements, mutual funds, stocks, bonds, investment properties, etc. In most cases, you’ll need 2 months worth of statements for these accounts.
- Documentation and account numbers for liabilities, such as personal loans, auto loans, credit card accounts, etc.
In addition to the above documentation, if you are self-employed, you should have a year-to-date profit and loss statement prepared, as well as copies of your 1040 tax returns – include all pages/schedules – for 2 years. If you rely on other income sources, such as alimony, child support, or social security, you will need evidentiary documents for those, as well. If you’re divorced, you’ll want to have a copy of your divorce decree on hand.
After you’ve gathered up all your documents, you should begin to apply for your mortgage refinance loan. You will probably want to start with your current lender, but don’t stop there! As with any major purchase, it’s wiser to compare at least 3 different offers…possibly more. Comparing offers allows you to get a better idea of what rate you may be able to qualify for, and puts you in a better negotiating position with the lenders.
When you receive your offers, pay close attention to the interest rate, points and closing costs. Looking at all three will give you a broader view of how your offers compare. Talk to the loan officers, and see if you can negotiate a better interest rate. Quite often, the initial rate offered is not the best a particular lender can offer.
In January, many consumers find themselves saddled with holiday debt. If you’ve run up your credit cards traveling or buying gifts, you might consider paying them off when you refinance your mortgage. You can do this with a mortgage refinance/cash-out loan. A cash-out refinance allows you to “roll” your outstanding debts into your new mortgage loan amount, and start fresh. Just be careful you don’t bite off more than you can chew; pulling cash out may cause an increase in the mortgage interest rate, as well as a larger monthly payment.
