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Tips and Tricks for Refinancing Your Mortgage and Using a Refinancing Calculator

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Getting a loan can be a little intimidating, and if you aren’t sure about your financial situation, you might be wondering if there’s even a chance of getting the loan. The amount you can afford is one of the things lenders take into consideration when making a decision, so it’s a good idea to know how much that is. There are other things you can do to improve your chances of getting a loan as well.

There’s no need to worry about refinancing. Having a sense of where to begin is perhaps more important than anything else. You can simplify the refinancing process by following the tips and tricks below.

Figure Out Your ‘Why’

Identifying your reasons for refinancing is key before applying for a mortgage refinance. Many people refinance their home loans for a variety of reasons. The following are among them:

  • Payments being lowered
  • Lowering your interest rate by locking in
  • Loan terms being shortened or extended
  • The process of accessing property equity
  • PMI is being removed from mortgages

The right type of refinance loan will depend on your reasons for refinancing your home.

Know Your Credit Score

Depending on your credit score, you may qualify for loans and what interest rates you’ll pay. You may temporarily see a minor impact on your credit score after refinancing due to a hard credit check. Credit reports can provide you with your credit score.

Specifically, Experian®, TransUnion®, and Equifax® are the three major credit reporting companies. Credit reports may differ slightly between credit bureaus. As a result, your score with one bureau may be higher than with another since companies that give you loans or credit cards may not report to all three bureaus.

Prior to pursuing a refinance loan, ensure that each of your credit reports is error-free. Your chances of qualifying for a refinance can be harmed even by small mistakes. Each credit bureau should be notified immediately if you find any mistakes.

Be Proactive If Your Score is Low

Refinancing options for people with low credit scores may be available if your score is lower than expected. Increasing interest rates on these loans may make them more expensive than your original home loan, but they may allow you to refinance your mortgage.

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In this case, you should improve your credit score before refinancing, especially if it is on the lower end. Your credit score will increase as you manage your spending, pay all your bills on time, and work towards reducing your debt.

Understand Your Equity

Your equity in your property must be known before you can refinance a cash-out. Home equity is what you owe compared to the current market value of your home. As you make mortgage payments, you build equity because you pay down some of your principal balance. Choosing to refinance would enable you to take advantage of this equity as cash.

The interest rate on refinancing with cash out is usually lower than the interest rate on other types of debt, so many homeowners refinance to pay off debt or cover repair costs.

With most refinances, you won’t be able to obtain 100% of your equity. In actuality, conventional lenders and FHA lenders require that you retain at least 20% equity after refinancing. As opposed to conventional loans, VA loans don’t require you to leave any equity in your home after the closing. Before applying for a loan, it’s important to know how much money you’ll need and that you have enough equity to cover it.

Having trouble calculating your home’s equity? To find out how much of your principal balance you have paid off, ask your lender for a mortgage statement.

Don’t Forget About Closing Costs

In order to complete your refinance, you will have to pay closing costs, just as you would when you took out a mortgage loan. In order to close a home, you’ll have to pay a variety of closing costs, such as:

  • Refinance application fees: When you apply for a refinance, your lender may require you to pay a fee. If you refinance your loan or not, you’ll have to pay this fee.
  • Getting a refinance typically requires an appraisal from your lender. The appraisal ensures that the value of your property hasn’t dropped since you bought it, and it ensures that you’re not being lent more than it’s worth.
  • You must have an inspection before you close on a refinance in some states (such as a pest inspection). Depending on the type of loan you are seeking, you may also be required to undergo an inspection.
  • A review of refinance documents by an attorney before closing can be required by some states. Your real estate lawyer will charge you his or her fees if you hire them.
  • In the event that you refinance with a new lender who did not service your old loan, you may have to pay for a title search and insurance again. Depending on the situation, you and your lender may need to purchase title insurance again.

The closing costs on a refinance loan should be between 2% – 6%. Check with your lender before applying for a refinance to ensure you can afford these costs, or ask them to include them in the refinance instead.

Be Careful With No-Closing-Cost Refinances

If you are unable to afford closing costs, your lender might offer you a refinance without them. If you want to take advantage of the higher interest rate offered by your lender, you must take on a higher closing cost waiver.

A no-closing-cost refinance with a $200,000 loan can save you $6,000 – $12,000 in closing costs. However, you will typically end up paying more in interest when all is said and done. Take a no-closing-cost to refinance only if you know how much you’ll pay extra.

You may also be able to refinance with no closing cost but with a 4% interest rate. By the time your loan matures, you will have paid $107,834.26 in interest. When you pay your closing costs in advance, you will pay over $10,000 less than if you had only paid a half percentage point of difference. Use a kalkulator for refinansiering to see what you can afford.

Make Upgrades Easy to Find

Typically, when refinancing the value of your home, your lender will order an appraisal to ensure the loan amount matches the value of your home. When you buy a home, upgrades that you’ve made are one of the factors that influence the value. A home appraiser might have a hard time spotting certain upgrades.

If you’ve made permanent improvements to your property, make sure you provide a list to your appraiser. If applicable, include receipts and estimates from contractors. Be sure to point out all the additions you’ve made to your appraiser as you walk through your home. Your property’s value can be increased by doing this.

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Set Yourself Up for Appraisal Success

When you have your home appraised, your appraiser will estimate its value. A higher appraised value than what you paid for your home would be a best-case scenario. A refinance may need to be adjusted if the appraisal comes back low.

You can improve your appraisal chances by taking the following steps:

  • Research is important. Your home’s value is influenced by the property values in your area. Present your appraiser with a recent list of sales for properties similar to yours. If this information is provided to your appraiser, he or she will be able to see the trends in property values in your neighborhood more easily.
  • Make your exterior stand out. Make sure your property’s curb appeal looks great right before your appraisal by taking a few steps. Prepare your lawn for the big day by mowing it, doing some gardening, and putting away children’s toys.
  • Provide as much comfort as you can in your home. Your appraiser’s assessment can be influenced if you feel comfortable in your home. Make your home as comfortable as possible by doing some light cleaning, making sure pets are out of the way, and setting your thermostat appropriately.

Respond to Lender Inquiries Quickly

The refinancing process can take anywhere from 30 – 45 days, but you can usually expect it to take around that time. Responding to your lender’s inquiries as soon as possible will ensure a smooth and quick refinance process.

If your lender requests additional information regarding credit, employment, or financial history, you may have to provide it. In case the lender has further questions, provide them with your contact information within a few days of their request for documents.

You will receive a Closing Disclosure after your lender completes the underwriting process and reviews your appraisal. You’ll receive a Closing Disclosure that provides you with details about your final loan terms, closing costs, and rate. Once you receive your Disclosure, you must have three days to review it. Once you receive your Closing Disclosure, acknowledge receipt.

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