Getting a new mortgage to replace the original is a great way to save money and lower your monthly payments. But not all lenders and borrowers are good candidates. Hence, here are some credit counseling tips for homeowners to know before refinancing your home.
Many homebuyers are misinformed about down payments, lender rules, mortgage rates and refinancing. According to a recent survey from Zillow (“One-third of Homeowners Surveyed Are Ill-Prepared to Get a Mortgage,” May 9, 2013), 47 percent of current homeowners incorrectly believe they must wait at least one year between refinancing. Separately, the survey revealed that nearly 14 million Americans did not believe underwater borrowers (owing more than your home is worth) could refinance. In addition, more than one-third of current homeowners incorrectly believed that you can only refinance your home every 12 months.
What Should You Know Before Refinancing Your Home?
- Beware of Increased Terms: Borrowers should be aware that increasing the term of the loan repayment means more payments and more interest. Borrowers can use an online home refinance calculator. These can help calculate monthly payments under these repayment plans.
- Meet Qualifying Criteria: Before deciding on refinancing your home, borrowers should be sure to meet all of the qualifications. To refinance, homeowners should have:
- A regular income,
- At least 10 to 20 percent equity in their homes
- And a FICO credit score of 740 or better.
Borrowers with scores as low as 620 can qualify for a Federal Housing Administration mortgage, which is available through banks, credit unions, and other lenders.
- Look at Short-Term Loans: If you’re not going to stay in your home for over 10 years, you should consider a hybrid loan. These are fixed for 5, 7, or 10 years and then converts into a 1-year adjustable rate mortgage. These loans reduce the amount of interest, but if you stay beyond the fixed period, your rate can rise.
- Know Your Options: Before refinancing your home, weigh your options. Compare monthly payments, interest savings, the length of the mortgage, refinancing costs, eligibility etc. Speak with your current lender to see what types of options are available. Let the lender know you are shopping around for the best deal.
All homeowners have their own unique and personal financial situation. But taking advantage of refinancing can be rewarding particularly when consumers take the time to properly research and make educated decisions on the timeliness of their repayments.
If you’re struggling to pay off debt, schedule a free counseling session with us today.