Many homeowners will make the strategic decision to refinance their home mortgage within a few years after taking ownership of their home. Refinancing allows you to combine first and second lien loans. This can help you to save money on mortgage payments, pay off the debt more quickly and enjoy other benefits. You may also be able to lock in a lower rate, take out equity and more. If you have never refinanced your mortgage, you may be wondering what steps you need to take to get started with the process.
Determining if You Can and Should Refinance
As a first step, you should carefully review your current loan terms, including the rate, term and outstanding balance. If you will be refinancing a first and second lien, compare all of the terms together. Most refinance loans require you to have at least 20 percent equity in the home. Therefore, review the current value to determine that you can comply with this. Some homeowners may find that they need to wait longer before refinancing. In addition, think about the loan fees to determine if you want to absorb the cost of a refinance.
Exploring the Loan Options
Refinancing your home mortgage gives you the incredible ability to adjust your loan rate and term. For example, some homeowners who originally applied for a 30-year term may now want to apply for a 15-year term to pay the debt off more quickly. Because they have paid off some principal, a shorter term loan may now be more affordable than it was previously. By learning more about what the loan options are and what the rates are, you can more easily determine the best course of action. You can also compare lenders to determine which lender you want to apply for your loan with. While rates and fees are important to compare, it is also critical to find a lender that is responsive and easy to work with.
Moving Forward With the Loan Process
After you have finalized your plans to refinance your mortgage and selected your lender, you can begin the loan process. Your lender will provide you with a loan application to complete, and you may also need to agree to have your credit report reviewed. After an initial pre-qualification, your lender may ask you for similar documentation that was required when you originally applied for your current mortgage, such as bank statements, tax returns and more. A new appraisal may also be ordered if the old one is dated.
Many homeowners will refinance their mortgage at least once or twice. A home mortgage is one of your most significant debts, and refinancing allows you to more strategically manage this debt, to align it with your future plans and to obtain equity from the home. Refinancing can be a lengthy, stressful process because it is similar to applying for a purchase loan. If you are preparing to refinance your loan, you can easily take these preliminary steps to get the process started on the right foot.