4 Things To Do If You’re Ready To Refinance

Highlights:

• Refinancing your mortgage entails replacing your existing home loan with a new one.
• To refinance, the borrower should have at least a 620 credit score and a debt-to-income ratio below 43%.
• Before you refinance, know your home's fair market value and prepare for the appraisal.

If you are a homeowner, you may have considered refinancing your home. Most borrowers refinance their mortgage when interest rates fall. But there may be other reasons you wish to refinance your home loan. You may want to make some upgrades that your home and family need. Or it could be that the cost of living around you is so high that it makes more sense to stay instead of moving. Whatever your reason for refinancing, there are some steps you should know about.

What is refinancing?

Refinancing your mortgage entails replacing your existing home loan with a new one. This means you will have a new monthly payment and a new interest rate. There are two common types of refinancing: rate-and-term and cash-out. A rate-and-term refinance helps homeowners who want a better rate and terms. A cash-out refinance allows homeowners to get access to their home's equity. To refinance, the borrower should have at least a 620 credit score and a debt-to-income ratio below 43%.

Borrowers can refinance with the same lender or can choose a new lender. Like your original loan, the borrower still has to cover closing costs. Once the refinance has happened, the lender pays off your old mortgage. With a cash-out refinance, the lender will disburse the extra funds to the borrower.

How do you refinance your mortgage?

Before you refinance, there are some steps that you can take to ensure the process is as smooth as possible.

1. Know your home's true fair market value. Many homeowners think their property has a higher market value than it does. Homeowners who want to refinance should contact their local tax commissioner. Submit a request to know their home's fair market value. They should also look at the "sold" price of comparative properties in their area. This helps them get a more accurate idea of their home's value.
2. Prepare your home for the appraisal. Before your refinance loan can go through, the lender will want to conduct an appraisal. Before the appraisal, homeowners should look at their home with a critical eye. You may not be able to replace the outdated cabinetry or light fixtures throughout the home. But, you should clean out gutters that may be water damage risks. Touch up paint inside and out where worn or chipped. Pressure wash the outside of the home. Trim shrubs and clean up overgrown landscaping. These can all help add dollars to your appraisal value.
3. Understanding your credit. Your credit scores and credit history may determine your loan terms. This includes your interest rate. It's also important to have good credit behaviors before you refinance. Pay your bills on time, use a low percentage of available credit, and pay off debts. It's also important to ensure the information on your credit reports is accurate.
4. Research Lenders. Some borrowers may prefer having their refinance loan through their existing mortgage lender. But, different lenders may have different options available. Besides the interest rate, borrowers should also consider lenders based on other factors. This includes average time to close, customer experience, and digital mortgage capabilities. You should also pay attention to customer service and ongoing support.

How Equifax^® can help you during the refinancing process

If it is your first time refinancing your home, there may be a lot of unknowns. One thing you can be certain of is where your credit stands before you choose to refinance. With Equifax Complete™ Premier, you can review your Equifax credit report at any time. Your annual Equifax 3-bureau credit report will give you an in depth way to assess your credit. Plus, you’ll get alerted if we find your Social Security, credit card, debit card, banking, medical ID or passport numbers on suspected fraudulent websites on the dark web. Refinancing can be a lot of work, but with Equifax, you know where your credit stands going in.