Home mortgage financing is not always that easy to handle, especially when it comes to lenders who have strict policies and lengthy approval processes, making it even more challenging to request a loan. The founder and CEO of LoanDepot.com, Anthony Hsieh, says, “Homeowners today need to be triathletes to qualify for a loan, with great income, great credit, and great value in their home.” Before choosing to refinance your home mortgage for a loan, you must ask yourself six critical questions.
Do I Have Equity in My Home?
Ideally, homeowners should have 20% equity in their homes to sign up for a loan request without paying private mortgage insurance. This lack of equity may adversely affect the benefit of refinancing and make homeowners owe more than their house’s actual cost. Home Savings’ vice president says that going for mortgage refinancing without sufficient equity only depreciates a house’s value. Another thing that impacts qualifying for the loan is the borrower’s credit score. To qualify for refinancing your mortgage to get a loan, you need to have a good credit score, much like when you obtained the original loan that created your mortgage.
What are My Financial Goals?
Most of the homeowners opt for refinancing to reduce their monthly installments. A good mortgage calculator may guide you in deciding your installment plans and reduce the interest amounts. The vice president of Home Savings says, “Some people are restructuring their loans to a 20-, 15- or 10-year mortgage, which works well for people with plenty of disposable income. But I worry that people are too focused on paying off their mortgage and not integrating this decision with their overall financial plan.”
What are the Terms of the Current Loan?
When refinancing your home, another important question you need to ask is about your current loan terms and conditions. When it comes to terms and conditions, interest rates and fluctuations are the biggest financial concerns for borrowing homeowners. Borrowers should stick to fixed-rate loans rather than variable rates.
While asking for a refinance for your home, you should be certain about the time you plan to spend in your home. In general, Mortgage professionals inform the borrowers that a refinance may cost them three to six percent more than the home’s actual cost. If the break-even tends to happen at fifteen months while you still plan to stay in that house for the next five or more years, then it is good to go for refinancing. However, if you have to leave in two years, then refinancing is not a good option.
Is My Credit Score High Enough?
A borrower’s credit score is an important factor that plays a vital role in getting a good mortgage rate. Any mortgage borrower needs to have a good credit score because it becomes nearly impossible for you to qualify for refinancing without a high credit score. Ideally, a borrower will have a score of 720 or more. Any credit score less than 620 may cause hassles in getting approved to refinance your mortgage.
Do I Have a Second Mortgage or Line of Credit?
Getting a second loan may cause the borrower extra stress. It comes with additional complexity, and borrowers might lose track of payment schedules. Borrowers have the option of paying off the first loan before entering into the second loan, or they can combine both loans by making them into one large loan. Having only one loan will make it easier to keep your payments in order as having more than one loan at a time can cause confusion.
Conclusion
The bottom line is that you need to know if you not only qualify to refinance your mortgage but if you should. Consider all six of these questions before making this important decision that will affect your financial future.
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