- Understand when it makes sense to refinance.
- Learn what a refinance lender needs from you.
- Comparison shop, in order to find the best loan.
Eight Basic Refinance Questions Answered
Here are quick answers to the nine most popular refinance questions we have received. You will find more detailed information on all of the questions below,throughout the Refinance section of Bills.com,
1. What is a Mortgage Refinance?
A refinance is a loan transaction where a homeowner with an existing mortgage gets a new mortgage, paying off the balance of the existing mortgage. A refinance replaces the existing mortgage with a new one.
2. What are the Best Reasons for Refinancing?
Homeowners refinance for different reasons, including:
- Lowering their mortgage interest rate
- Taking a cash-out refinance to consolidate other debt, finance a big-ticket purchase, or pay college education expenses
- Increasing the length of the loan term, to end up with a smaller monthly payment
- Decreasing the loan term, to pay off the loan faster
- Changing from an adjustable rate to a fixed (or vice-versa).
Read the Bills.com article about Reasons to Refinance and Not Refinance Your Home, to learn more.
2. What do I Need to Qualify for a Refinance Loan?
In order to qualify you will need to show:
- Verifiable income that is sufficient to make your monthly mortgage payment and the monthly payments on other debts like car payments and credit card debt.
- A minimum credit score. The exact score you'll need depends both on the type of loan you apply for and the lender with whom you work.
- A credit history without recent, major blemishes. Even with a qualifying credit score, your refinance could be derailed by a recent bankruptcy, collection accounts or a judgment against you.
- Equity in your home. The more equity you have, the more loan programs that are available. If you need to finance more than 80% of your home's value, expect to pay mortgage insurance.
Read the Bills.com resource 4 Key Questions Refinance Lenders Want Answered in Your Refinance Application, to learn more.
3. How do I Find Out if I Qualify?
The fastest and surest way to way to determine if you qualify is to check with a mortgage lender or broker. Only be closely examining your complete situation and reviewing the supporting documents you supply can a lender determine if you can qualify for a refinance.
4. What is the Best Loan for Me?
Which loan is best for you depends on your individual situation. Start by working to determine your goals for refinancing. Once you define your goals, an experienced loan officer can help you reach your goals or advise you whether a specific loan program may be best for you.
If you have less than excellent credit or very little equity in your home, look into an FHA refinance loan. FHA home loans are available, from some lenders with credit scores as low as 580. FHA loans also are available up to 96.5% of your home's value.
5. How Do I Find the Right Lender?
Comparison shopping is the best way to find the lender, along with checking out the reputation of any prospective.
6. What are the Basic Documents Will the Lender Need From Me?
The basic documents your lenders will need:
- A formal loan application
- Proof of your income, usually some pay-stubs and recent tax returns.
- Permission to pull your credit report.
- An appraisal of your home's value .
7. How Much Will a Refinance Cost Me?
Your costs depend on the loan program you apply for as well as how you choose to structure your loan. It is possible to get a refinance loan without spending any money out of pocket. That doesn't mean that there are no costs, but can include them in your loan. "No cost" loans usually come with a higher interest rate. Pay attention to costs your lender charges, such as origination fees, processing fees, discount points, as well as third-party fees, taxes and other required transactional expenses. Because costs can vary widely, comparison shop to find the best loan.
Read the Bills.com resource What Are Refinance Rates Today and How Are They Determined?, to learn more.
8. Is Now a Good Time to Refinance?
This is one of the most popular questions that we receive at Bills.com. Rates reached historic lows in 2012. Rates then started climbing, but remain very low. The bottom line is that rates are still low enough that it makes sense for you to see if refinancing will save you money.