Many homeowners are considering refinancing, as the housing market has grown so drastically in recent years. If you are wondering whether now is the time to refinance or want to know more about how to prepare for refinancing, we have 5 tips to help.

Why Refinance?

First of all, you should determine if refinancing is likely to be a good choice for your individual scenario. It is worth talking to a loan officer about refinancing if any of these are true of you:

• Interest rates are lower now than they were when you bought your home.
• Your credit score, debt-to-income ratio, or income have increased since buying your home.
• You have an ARM and it’s time to transition to a fixed rate mortgage.
• You have debt to consolidate.
• Your income has recently decreased and you want to lower your monthly payment.
• You are currently paying PMI, but you could now qualify for a mortgage without it.
• You plan to move soon, and an ARM will allow you to lock in a lower introductory rate until then.

If you are realizing refinancing might be the right next financial move for you, here are 5 ways to prepare.

1. Determine Your Goal

The first step to take as your prepare for refinancing to deciding what the goal of refinancing is for you. There are many potential benefits to refinancing, including saving money on interest in the long term, lowering your monthly payment, or cashing in on some of your equity.

Consider your financial goals, so that you can begin with the end in mind. If you are a strong financial candidate, you may end up with many options and it will help to already have your end goal set as you choose between them. Some possible goals might be:

• Taking out enough cash to finance a home renovation
• Lowering the monthly payment to accommodate a career change
• Eliminating PMI to put more of your money toward the loan itself

2. Do The Math

The next step to prepare for refinancing is doing the math. Figure out your ideal scenario by calculating what terms and interest rate will get you to your ultimate goal.

Make sure to let your loan officer know what your target numbers are so they can help you meet your goals. Remember that a loan officer is here to help!

3. Get Your Finances Ready

You already know from your previous experience qualifying for a mortgage what an underwrite wants to see to be able to confidently offer the most favorable terms. Wherever possible, prepare your finances to put your best foot forward as a borrower. This includes:

• Raising or maintaining your credit score to keep it in the “very good” or “excellent” range
• Pay off tax liens
• Avoid taking on new debt or opening new lines of credit

4. Collect Relevant Paperwork

To prepare for refinancing in the most efficient way, gather any paperwork you know you will need. The more quickly you can provide the necessary documentation, the faster the refinance process will go. Remember this is different from a typical escrow period, because you do not have to coordinate with another party (i.e. the sellers).

The timeline is determined by how quickly you get the information ready for underwriters to approve, so be prepared when you talk with your loan officer by collecting relevant paperwork, like:

• 2 years of tax returns (including business tax returns if you own 25% or more of a business)
• 2 years of W-2s or 1099s
• 2 months of bank statements
• Proof of alimony or child support payments

5. Prepare for a Home Appraisal

An appraisal will be conducted to determine the amount of equity you have in your home. Prepare for refinancing by getting your home ready for appraisal. Collect receipts for any renovations or remodeling that has taken place since you bought the home, and focus on the parts of the home appraisers pay attention to, including:

• Updated safety features (i.e. carbon monoxide and smoke detectors)
• Repairs to damaged walls, floors, etc.
• Cosmetic changes
• General care, supporting the appearance of a well-maintained home

To learn more about how to prepare for refinancing or to find out what you might qualify for, contact us anytime. We have loan officers ready to help you meet your financial goals.

More Advice for Homeowners Refinancing:

How Often Can I Refinance?

What Are Closing Costs?

Why You Should Consider a Home Refinance

5 Great Reasons to Refinance Your Home

Ready to Refinance?

Bank Statement Home Loan Programs Work Well for Self-Employed

Once you realize that refinancing can offer a long list of benefits (lowering your monthly payment, cashing out your equity, and getting out of PMI), you will likely want to know how often you can refinance to reap these benefits. The short answer is if you have a conventional loan you’re allowed to refinance as often as you would like. Some lenders do place limits on how soon after the initial closing you can refinance, and FHA loans come with their own timeline as well, but in most cases, there is no legal limit on the number of times you can refinance your mortgage or the amount of time that needs to pass between refinancing.

Is It Worth It?

It’s important to know how to figure out if refinancing, whether for the first time or the fifth time, makes financial sense. The terms of the loan, specifically closing costs and interest rate, will be the most important factors to consider. Generally speaking, if a refinance will bring your interest rate down by at least .05% it will save enough money to be worthwhile. While you can nearly always roll closing costs into the loan itself, you will also be tacking on a small sum to the principal. It is important to have an idea of how long you expect to own the home before selling it in order to calculate whether a refinance is worth it in your specific scenario. A general rule of thumb is if the closing costs of the loan will be recouped within five years or less, the refinance will be worthwhile (assuming you plan to own the property for at least five more years).

Increasing the Loan Term

In most cases, refinancing will either mean a 15 or 30 year term begins at the refinance closing date. Logically, the more you refinance, the longer it will take to pay off your mortgage, as you kick the proverbial can down the proverbial road with each refinance. Often, this still makes financial sense if it allows your monthly payment to be significantly more manageable or provides finances for home improvement or repair.

Meeting Lender’s Standards

While there is no legal limit to how many times or how frequently you can refinance, keep in mind that lenders will still expect you to meet certain standards to qualify for a refinance. This means your income, credit score, and debt-to-income ratio will need to remain as good as, or better than, they were when you closed on your existing mortgage.

Prepayment Penalties

Before you plan to refinance, make sure you know whether there are any prepayment penalties on your existing mortgage. Some lenders offer no prepayment penalties, while others may require you to pay anything you saved in interest by paying off the mortgage early, which is what a refinance will essentially do. Speaking with a qualified mortgage professional can help you determine whether this applies in your specific situation.

So, how often can you refinance? The simple answer is you can refinance every month if you really want to, but it may not ultimately benefit you. Being well informed about the different types of loans, current interest rates, and your expected timeline in your current home will be essential to making the best financial decision in your specific situation. If you’re still not sure if you should refinance again, reach out to a mortgage lender with your detailed questions to find out whether it’s financially worthwhile in your scenario.

More Information for Homeowners

How To Know How Much Equity I Have In My Home

How Best to Take Advantage of Your Home Equity Gains

What Should A Homeowner Do When The Mortgage Forbearance Is Over

3 Ways to Know if Refinancing is Right For You

The need to mortgage one’s home has earned about sixty-two percent of owner-occupied properties their own properties. A good mortgage plan steps in to help when owning your home outrightly doesn’t suffice. So where does refinancing one’s home come in? How does it work? What are the benefits? Let’s find out.

What does it mean to refinance your home?

A mortgage cannot be said to be a bad thing, neither can it be said to be a good thing. It is a case of preference. For some people, debt is better avoided at all costs, while for others it is a tool used to increase wealth. Whatever you see it as is what it remains for you.

Now that you have taken on a mortgage for your home, where does refinancing it come in? Simply, Interest! Refinancing your mortgage is a chance to negotiate for a better interest or terms in comparison to what you currently have. If you feel unsatisfactory about it now, it’s probably a good time to refinance. All this entails, is that you replace your existing mortgage with a new one that accrues favorable interest and benefits.

The idea behind this is to give yourself the opportunity to save some money – so closing costs, interest rates, and how many years you will remain in your house will help you decide what your savings will look like.

Related: The 4 C’s of Credit – External

Why should you refinance your home?

1. A Shorter Term: Moving from a mortgage spread across 30 years to one that is for 15 years can save you a ton of cash. This may come with slightly higher monthly installments, but based on the weight of your rate or loan, the difference can be almost insignificant.

2. Lower interest rates: Since the surge of refinancing in 2020, lower interest rates are one reoccurring reason why debtors are refinancing their homes. Due to the maturing economy, mortgage rates have reduced and may remain so for a while. When you refinance your mortgage, for this reason, you can save more money for other pressing needs.

3. Home renovation and refurbishing: According to research, over 40 million homeowners have accessible equity. Thanks to the rising home prices, your tapped equity can cover your renovations. This is one reason you should consider refinancing your home.

4. To reinvest: When you opt for a cash-out refinance option, the funds received can be used as a down payment to acquire another home or afford some relaxation for yourself. Better still, it can be used to acquire a rental property that can help you make your payments.

5. Erode mortgage insurance: Thanks to the equity acquired on your home – renovations, vacation homes, a getaway isn’t the only thing that can be covered. When you refinance your home into a conventional mortgage, at least 20% equity can afford you the cost of mortgage insurance. Especially if your mortgage is insured by FHA, also known as Federal Housing Administration.

Accordingly, your need to refinance your home depends on your financial and personal goals. In all, the benefits of refinancing are beneficial with regard to money and time.

If you’re ready to look into refinancing, give me a call. It’s still a great time and if you can get at least one full point lower than you have now, it’s well worth it. It literally costs nothing out of pocket. Contact me now for all refinance options.

More Tips for Those Refinancing:

Mortgage Rates Are Going Up – What to Do

Why You Should Consider a Home Refinance