Four Things You Need to Know Before You Refinance
Refinancing is a hot topic right now as it offers a lot of different financial options for you as a homeowner. Before you begin, here are four things you should consider to get the best rate possible.
1. No Big Purchases
Making new purchases on existing credit cards or applying for new credit during the process of applying for a mortgage loan is one of the biggest penalizing mistakes borrowers can make. Large buying transactions impact debt to income ratios and impact a consumer’s ability to qualify for a new mortgage at favorable rates. Don’t max out your existing credit cards, and that will ensure that your balances fall within the optimal ranges of 33 percent of the borrowing limit before you apply for a new mortgage. Most borrowers don’t understand that mortgage companies update their credit before closing, and many times because they leased a new car or spent a sizable amount on their credit cards during the process, it adversely affects the loan. Sometimes it will cause significant delays and other times it may turn a loan that was approved into a loan that no longer qualifies.
2. Check your credit history
Ensure that all accounts are accurate, and any old judgments and collections are current and in good standing. Some easy ways to maintain your credit score or even increase it include the following:
- Making sure all bills are paid on time and are current.
- Paying down debt and keeping your balances low on credit cards and other revolving credit throughout the process.
- Not applying for any new accounts during the mortgage process.
- Keeping unused credit cards open is actually a good way to keep your percentage of total credit usage low.
3. Consider Refinancing Every Five Years
It can make sense to review refinance options in intervals of five years as some of you may be interested in refinancing to cut the length of your current loan to pay the loan off sooner and save thousands of dollars in interest payments. While the monthly payment to shorten the loan could be higher, the record low interest rates make it appealing to homeowners who are comfortable with the monthly payment and wish to rapidly build equity.
4. Start the process ASAP
Finally, don’t postpone the refi process due to the pandemic! Be sure to look into refinancing as soon as possible because here at LendUS and across the industry, it is taking a bit more time getting information from 3rd parties. If you have a rate at or above 4 percent or can lower your current rate by 1 percent or more, it likely makes sense for you to call a one of our loan officers to go over the potential savings.