Since interest rates are so low right now, many homeowners are considering a refinance on their home loans. If you are considering mortgage refinancing in Kansas City, we have some advice on everything you need to know about the refinancing process.
What Is Refinancing?
Refinancing is a term that describes the act of replacing your current loan with a new one. In the case of refinancing mortgages, you are often replacing your existing loan with a loan that has a lower interest rate or faster pay-off time. The goal of refinancing your home would be to decrease your payments or speed up your payment plan.
When Should You Consider Refinancing Your Mortgage Loan?
The best time to refinance your loan is when interest rates drop below the rate you received when you initially closed your mortgage. You should also consider refinancing when your credit score improves to the point that you qualify for a loan with better terms. If you can refinance your home at an interest rate that is at least half a percentage point lower than your original rate and you plan to stay in your home for a few more years, refinancing is worth it.
It might make financial sense to refinance your home loan when:
- You can get a lower interest rate and reduce your monthly mortgage payments.
- You can recoup the costs of refinancing pretty quickly.
- You can get a shorter loan term to pay off your mortgage faster with a lot less in total interest.
- You can switch from an adjustable-rate mortgage (ARM) to a fixed-rate loan.
- You can eliminate the mortgage insurance payment on the loan.
- You can get cash out from your home’s equity, which is called a cash-out refinance.
How to Refinance Your Home
The decision to look at home refinance options has been made, but now what? How do you go about the refinancing process? Here are the steps you need to take.
1. Figure Out Your Financial Goals
What is the reason you want to refinance? Whether you are looking to shorten the term of your loan, reduce your monthly payment, or pull equity out of your home for any reason, there should always be a reason that you are refinancing.
It is also important to remember that if your goal is to reduce your monthly payment, but you restart the clock on a 30-year loan, you will pay more over the life of your loan even though your monthly payments are lower.
2. Check on Your Credit
Just as you needed a credit check for your original home loan, you will need to have good enough credit to qualify for a refinance. As with any loan, the higher your credit score, the better the rates you can get from lenders, and the more likely you are to get approved for a loan. If you have had trouble with your credit score in the past, you might want to spend some time building up your credit score before deciding to refinance.
3. Determine Your Home Equity
Home equity is the value of your home that exceeds what you still owe on your mortgage. You can determine your equity by looking at the current balance remaining on your mortgage and your home’s current estimated value. You can figure out your home’s estimated value by checking home search sites or working with a real estate agent to have an analysis done. For example, if your home is worth $200,000 and you still owe $120,000, your equity would be $80,000.
The more home equity you have, the better rates and fewer fees you will have to pay during the refinance. Having more than 20 percent equity will benefit you when trying to qualify for a refinance.
4. Shop Around for the Right Lender
Did you know that you could save thousands of dollars by shopping around for lenders? Talk to multiple different lenders to see which will offer you the best deal. Once you have chosen a lender, you will need to discuss locking in a rate.
You also need to pay attention to the cost of fees as you are shopping lenders. Some lenders will require payment of fees upfront, while others will roll them into your loan. Additionally, some lenders will offer no-closing-cost loans, but then they add money to the loan balance or give you a higher interest rate.
5. Gather the Necessary Paperwork
At this point in the process, you will need to start preparing all the paperwork that your lender requests. These documents typically include pay stubs, tax returns, bank statements, and potentially other items. At this point, your lender will look at your credit, debt-to-income ratio, net worth, assets, and more.
6. Set Up an Appraisal
Some lenders will require you to have your home appraised before okaying your refinancing. This will help determine the current market value of your home. You will have to pay for the appraisal, which is typically a few hundred dollars.
7. Get Money for Fees Together
Closing costs and other fees will need to be covered as you move forward in the refinancing process. Once you figure out what you need to pay out of pocket, you can start to gather up the money you will need to refinance your home loan. In some cases, you may be able to finance these costs, but you will probably be given a higher interest rate on your loan.
8. Monitor the Status of Your Loan
Keep copies of all of your paperwork handy, reach out to your lender to make sure things are going smoothly, and prepare for your refinance to finalize. Once you have everything in order, you should set up automatic payments to ensure that you never miss a mortgage payment.
If you are looking to refinance your Kansas City mortgage loan, First Fidelis is here to help. Our team can help you from start to finish as you refinance your mortgage loan. To get started, call us today at 913-205-9978.