If your financial situation has changed since you purchased your home, it may benefit you to refinance your existing mortgage. Whether you are looking to save money by refinancing into a lower rate, or whether you hope to take cash out by borrowing against the equity in your home, redoing your mortgage requires following a few important steps.
Check Your Credit
Check up on your qualification status before you apply for a new loan, regardless of the loan amount you wish to apply for, or which lender you choose. Request a copy of your credit report to verify there are no inaccuracies. If you have been late on any credit payments, filed for bankruptcy, experienced a repossession, or went through foreclosure on any other properties, your credit may be damaged. Damaged credit can affect your ability to redo your mortgage, since lenders see you as a credit risk. If you are behind in your mortgage payments, or if you have suffered recent financial difficulties, you may still qualify to redo your mortgage with a loan modification program. A modification can either lower your interest rate or extend the loan term, resulting in lower monthly payments.
Plan Ahead
Plan any upcoming life changes carefully when you intend to redo your mortgage. This is not the time to leave your job of five years to start a new career, for example. Mortgage lenders like to see reliability and steadiness in a borrower, and it's important to show that you have a consistent, stable income to pay back your mortgage loan. Wait until your new mortgage is finalized before you switch jobs or list your home for sale. If you have already made a recent job change, your lender may require you to wait up to two years before you can refinance your mortgage.
Determine the Benefit
Access a mortgage savings calculator like the one on the real estate website Zillow to figure out how much your mortgage payments will be after you lower your interest rate or take cash out. Set a cut-off point in your mind so you know what interest rate you need to ensure it's worth the effort to refinance. If your lender does not offer you a rate within that predetermined range, you know to decline the deal immediately.
Apply
Contact your current lender to apply. If your current mortgage note is in good standing and your financial situation is solid, you may qualify to simply refinance at a better rate. If you are struggling and seeking modification, only your current lender can approve a loan modification. With both options, your lender handles the application process and lets you know what documents to send in for loan approval. With good credit and a solid work history, you can apply with multiple lenders and choose the best offer you receive.
References
Writer Bio
Sara Melone is a mother of three and a graduate of UNH. With prior careers in insurance and finance, photography, as well as certifications in fitness and nutrition, Melone draws directly from past experience and varying interests. She contributes with equal passion to birth journals, investment blogs, and self-help websites.