Do you think it’s time to refinance your mortgage? You are in good company.
Refinancing applications in the United States rose 6.8% in the week ending August 7, nearly double the volume of a year ago, according to the Mortgage Bankers Association (MBA) Weekly Mortgage Application Survey. Chalk up the refi incentive to record mortgage rates: The average rate on a 30-year fixed mortgage has hovered below 3% in recent weeks, mortgage giant Freddie Mac reports.
You can explore your mortgage refinancing options by visiting Credible.
If you’ve never refinanced a mortgage before, don’t worry, refinancing your home is actually pretty straightforward and can lower your monthly payments. Here are the five steps you will take.
- Step 1: Determine your financial goal
- 2nd step: Check your credit score and credit reports
- Step 3: Gather your refinancing application documents
- Step 4: Compare the prices
- Step 5: Navigate through the settlement
Read on to learn more about how these steps can help you make sure you’re ready to refinance.
Step 1: Determine Your Financial Goals
It is important to determine what your motive is and whether the cost of refinancing is worth it in the long run. You will likely refinance for one of these four reasons:
- To reduce your mortgage payments. You may want to refinance in order to get a lower mortgage rate. In fact, about 15.6 million homeowners – or 30% of those with a mortgage – could cut their monthly payment by $ 289 if they refinance at today’s rates, according to data provided to Yahoo Money by Black Knight, a loan research and analysis company. You can use a online mortgage refinance calculator to determine what your new monthly mortgage fees would be.
- To pay off your house faster. Refinancing can allow you to shorten the term of your loan, such as going from a 30-year mortgage to a 15-year mortgage, and pay off your mortgage in less time. The caveat: Paying off your loan faster usually means your mortgage payments will go up.
- Stop paying for private mortgage insurance. If you got a loan from the Federal Housing Administration (FHA) when you bought your home, you pay mortgage insurance (PMI) – a premium which generally costs 0.55% to 2.25% of the initial amount of your loan per year. Refinancing an FHA loan is the only way for you to stop paying the PMI.
- To tap into the equity in your home. You can also refinance to take money out of your home in the form of a Home Equity Loan (HEL) or Home Equity Line of Credit (HELOC). This is usually done to make home improvements, pay for college, consolidate debt, or make a down payment on a second home.
You can visit Credible to get prequalified mortgage refi rates in minutes without affecting your credit score.
Step 2: Check Your Credit Score and Credit Reports
The average FICO score in the United States reached a record high of 703 in 2019, according to Experian credit bureau data. But, only borrowers with excellent credit scores – read: credit scores of 740 or higher – qualify for the best mortgage rates.
See if you qualify for lower rates with your current credit score – just enter your information into Credible’s free online tools to see loan options and quotes in minutes without hurting your score.
You can get a free estimate of your credit score by visit myFICO.com. In addition, you are entitled to a free annual credit report from each of the three major credit reporting agencies in the United States – Experian, Equifax and TransUnion – at AnnualCreditReport.com. Check your credit reports for mistakes that can lower your score – one in four Americans in one Federal Trade Commission investigation said they found errors in their reports.
Step 3: Gather your refinancing application documents
By refinancing, you are essentially applying for a new loan, which means you will need to provide documents to verify your income, assets, debts, and employment history.
Here is a list of the most common documents you will need to complete a refinance application:
- Two years of W-2
- Two years of tax returns
- Two months of bank statements for any savings accounts and wealth statements
- A list of your current debts
- A copy of your home insurance policy
To streamline the application process, visit an online marketplace like Credible, where the document upload process is automated and there are fewer forms to fill out to view multiple lenders.
Step 4: shop
To make sure you get the lowest mortgage rate for which you qualify, it’s essential that you take the time to shop around and compare rates from multiple lenders. After all, rates can vary widely from one lender to another.
You can compare lenders and refinance rates by visiting Credible.
Step 5. Navigate through the settlement
Settlement, or “closing,” is the last step in the mortgage refinancing process. This is where you will sign the last papers to get your new loan.
You will need to bring a few items to the fence:
- Government-issued photo ID, such as your passport or driver’s license.
- Proof of home insurance.
- A cashier’s check from your bank or a receipt from a wire transfer for unpaid closing costs. Typically, the closing costs for a refinance range from 2% to 6% of your new loan amount.