Tips - Refinancing

Refinancing a home is something many homeowners think about but never actually get around to it.  When it comes to your mortgage – as little as a ¼ percentage point can mean a savings of of thousands of dollars over the life of a loan, so getting the best refinance rate is particularly important!

Below are some TIPS that will help ensure you get the best rates when refinancing your mortgage:

  • Leave your credit alone

    Leave your credit alone


    Typically most lenders will order another credit report for the borrower a few days prior closing. DO NOT open any new accounts or charge up your current credit cards while you wait for your transaction to close.


    New credit lines and maxed-out cards can affect your credit scores quite a bit. 

    If your qualifying debt-ratio was close to the max when you qualified, your loan could end up being rejected at the last minute if your credit changed for the worse.

  • Obtain a copy of your credit report and search for errors

    Obtain a copy of your credit report and search for errors


    According to studies, 1 in 5 people has a mistake on their credit report. Some people believe this number is even higher. Mistakes can lead to a lower credit score which in turn leads to refinance offers with higher rates. Be sure you contact the credit bureaus to dispute any mistakes on your report.


    Be sure to check your credit for errors and have them remedied prior to applying for a loan.

  • Review your credit report prior to applying for a mortgage

    Review your credit report prior to applying for a mortgage


    Sometimes, paying some of your credit card balances can boost your credit scores very quickly. Typically, if you are using more than 30% of the available credit on your cards, you are not getting the absolute best benefit of having those credit cards on your credit.

  • Ensure that your credit is up to par

    Ensure that your credit is up to par


    If you plan on obtaining refinancing your home loan anytime soon, you must really must really treat your credit as your most valuable asset. In order to receive the best interest rate, you will need a minimum credit FICO score of 740. Borrowers with a credit score of 620 or more can still obtain a decent rate. However, the lower your score, the more difficult it will be to get approved for the loan.

  • Pay off the balances on your credit cards

    Pay off the balances on your credit cards


    Your credit score is going to be one of the biggest factors in you getting the best refinance rate.

    One of the quickest ways to raise your credit score is by paying off the balances on your credit cards. The ratio of the balance compared to the credit limit on your credit cards is known as your credit utilization ratio. Your utilization ratio accounts for 30% of your overall FICO score. Paying the balances on your cards below 15% of the limit will have a significant positive impact on your credit score.


    If you cannot pay the balance down to that amount, try to keep your balance no more than 30% of your credit limit.

  • Have someone add you as an authorized user on their account

    Have someone add you as an authorized user on their account


    Banks allow credit card owners to add an authorized user on their account. This person is authorized to have access to the account and use a card. The account will be reported to the authorized user’s credit report. FICO does consider authorized users in their credit scoring algorithm. If you have a relative or a close friend with a credit card in good standing you should ask them to add you as a user. You don’t even need to physically have a card, and you really don’t want access to the account – you just want the account history on your report to help increase your credit score. This is a quick way to gain a few points on your score before applying for a refinance.

  • Dispute negative items on your credit report

    Dispute negative items on your credit report


    The Credit Bureaus allow all consumers to dispute any item on their credit report they believe is inaccurate. If you have accounts in collections or other negative account information, it is having a big negative impact on your credit score. You can dispute this type of information directly with each Credit Bureau. By law, the Bureaus have 30 days to validate the information you are disputing, or it must be removed.

  • Explore your refinance options

    Explore your refinance options


    Once you have maximized your credit score – it’s time to start contacting a lender or mortgage broker (such as Aiello & Associates) and gathering information about your loan options.


    • Are you refinancing from an FHA loan to a Conventional loan to remove PMI?
    • Do you need a cash-out refinance or a home equity loan?

    There are many types of refinance loans available and it’s good to know what you need first.

      

    See if you qualify for a Government refinance program – if you currently have of the following loans, you may qualify for a Streamline refinance program: 

      

    • FHA loan
    • VA
    • USDA

  • Want to pay off your mortgage sooner?

    Want to pay off your mortgage sooner?


    Consider a 10-year, 15-year, or 20-year refinance term – By obtaining a loan with a term shorter than the traditional 30 years term, you will receive a lower interest rates. 


    With a shorter loan term, your monthly mortgage payment will be higher, but a substantial portion of that payment will be going towards the principle balance. Paying off your loan quicker is always a great investment.

Ask us about the Flex-Term Loan!

Choose the desired amortization term that is best for your financial situation.

  • Don’t forget about closing costs

    Don’t forget about closing costs


    There is more to consider when refinancing your mortgage besides the rate. Closing costs are always associated when you refinance. The lender should provide you with a Loan Estimate (LE) that clearly breaks down their fees and your rate. Closing costs, just like rates will vary depending on the lender. Make sure you also compare closing costs when shopping lenders.

  • You have 30 days to have your credit ran without affecting your score

    You have 30 days to have your credit ran without affecting your score


    Most people choose not to shop multiple lenders because they’re afraid all the credit inquires will lower their credit score. The fact is that FICO, the scoring model that calculates your credit scores wants consumers to be able to shop around for the best rates. Multiple inquiries from the same type of lenders during a certain period is known as rate shopping. For mortgage rate shopping you have a 30-day’s window to have as many mortgage companies pull your credit report and it will only count as a single inquiry. It will not negatively affect your score if it’s done within a 30-day window.

  • Have all your documents ready

    Have all your documents ready


    Refinancing your mortgage loan will require lots of paperwork. You will need pay stubs, bank statements, tax returns, and more. Try to get these documents together prior starting the process. This will cut down on delays and allow your loan officer to move your refinance process along more quickly.

  • Shop around for mortgage rates

    Shop around for mortgage rates


    You should obtain rate quotes from at least three lenders and/or mortgage brokers and compare not only the interest rate itself but the closing costs and the quality of their service. Lean toward lenders or mortgage brokers who have a good reputation of closing their loans on time. Start with places like Aiello & Associates, and you can try referrals from friends and relatives.

  • Lock in your mortgage interest rate

    Lock in your mortgage interest rate


    When refinancing your mortgage loan timing is everything. Knowing when the rates are at their lowest and when to lock in that low rate is extremely important. Working with your loan officer and responding quickly to any document requests allow a mortgage broker to lock in the rate at the best possible time.

  • Your short and long-term goals matter

    Your short and long-term goals matter


    Knowing what your goals are with your home is what ultimately will make sense about refinancing.


    For example: If you want to save money on your monthly mortgage payments, then refinancing with a 30-year term will make the most sense. On the other hand, if you love your home and plan on living there for many more years, and you want to be mortgage-free one day, then consider a 10, or 15-year term refinance. 

    Keep in mind that refinancing to lower terms, such as15 years will have a lower interest rate than a 25 or a 30-year refinance term, but you may experience a payment shock as the payment towards the principal is greater.

  • Yes, there WILL be closing costs

    Yes, there WILL be closing costs


    All mortgage refinances carry closing costs. 


    Whether they are paid by the borrower out of pocket, in the rate or included in the loan amount, there will always be closing costs. 

    There will be a loan origination fee, underwriting fee, escrow and title fees, recording fees, etc.


    Additionally, if you wish to have an escrow impound account for your taxes and insurance (meaning paying them together with your mortgage payment), your new lender will collect some months in advanced reserves for the new escrow account. (The number of months that will be collected will depend on the month that your loan closes).


    Also, depending on the new mortgage loan program, there will be additional closing costs such as: 


    • FHA Up-front Mortgage Insurance
    • VA Funding fee (unless the borrower has an Exemption from paying this fee). However, No Monthly Mortgage Insurance is required for VA loans.

  • Figure out the break-even point

    Figure out the break-even point


    Due to the closing costs involved, your loan amount will generally increase (if you chose to include your closing costs in your new loan) and otherwise “consume” some of the equity that you have accumulated.


    However, if you are refinancing into a lower rate, the assumption is that you will break even at some point (recouping the costs associated with the refinance).


    Since not all loans are created equally, ask your lender what your specific break-even point will be if you should proceed with the refinance.

Respond to your lender or mortgage broker as soon as possible regarding any documentation requests
When refinancing, it is imperative that you are diligent at sending your lender all the

required documentation as soon as possible in order to ensure a smoother transaction and being able to close your transaction in a timely manner.


Keep in constant communication with your lender or mortgage broker to ensure the process goes smoothly.