Refinancing Your Home
Refinancing your home can be a useful tool to increase affordability and cash flow. The following steps can help guide you through this process. This checklist will certainly increase your chances at getting your application approved:
First, go to your lender already armed with paperwork. You will need pay stubs or other proof of wages, income and asset statements, and credit card documents. Abkemeier suggests getting the last three bank statements from each of your active accounts and being prepared to explain any large transfers. You will also need to compile income statements and original purchase or prior refinancing papers. If you have paid off credit cards, bring that paperwork, too. Are you self-employed? Getting income and asset records together is especially important. The more documentation you have, the better, experts say. Banks who freely lent before the housing crash,now want more proof of consistent cash inflows.
Get a sound appraisel. Today, it is up to the the borrower, says Keith Gumbinger of mortgage research firm HSH Associates in Pompton Plains, New Jersey, to make their case for refinancing. Unlike just a couple of years ago, you absolutely must prove you are the borrower you say you are, and your property must prove that is has the valuation that you claim it does. This may mean getting several appraisals, and checking various real estate web sites for comparable recent sales in your neighborhood.
Obtain an accurate credit report. Average mortgage rates may have never been lower, near 4-1/4 for 30-year loans, but you may not qualify for the best rates unless you have stellar credit. A FICO score of 720 is the ;break-even point; for the best rates, Gumbinger said. Fees are tacked on below that grade, and may cut the value of refinancing. Go to annualcreditreport.com for a free annual consolidated credit profile and also check myFICO.com, he suggests. Find any errors and fix them before starting the process, to avoid surprises that delay approval.
Shop Around. If one lender turns you down, try another. "Certainly go back to your current lender, but if there’s not an opportunity there, there are still a large number of originators who want to solve the problem,” said Michael Fratantoni, vice president of research and economics at the Mortgage Bankers Association. Some lenders are more willing to work with self-employed workers provided that they have more documentation of assets and income. If your loan is more than 80 percent of the value of your home, you'll likely need to get mortgage insurance. Refinancing might not be worth the cost in that case.
Cash in instead of cash out. Borrowers should consider bringing additional equity to the table,” or cashing in, rather than refinancing for an amount larger than the mortgage, which is cashing out. Almost one-quarter of borrowers who refinanced in the second quarter cut their principal balance by paying more money at the closing table. Freddy Mac indicated that this matches the third highest cash-in share in 25 years.