3 Things You Might Forget When Refinancing Your Home
08/19/2010 A home loan refinance is not something you apply for very often. Most homeowners who want to refinance their homes have never applied for a refinance loan before. There are several common mistakes that you should watch out for and avoid when refinancing your home.
Forgetting to prepare. Know what you're getting yourself into. Know what size loan you can afford. If you'll be taking out cash during your refinance, know how much you need. Take out no more and no less. If you walk into a lender's office without knowing these things, you'll end up with a new mortgage that doesn't fit your personal needs.
You should also research the qualifications that various lenders require. Compare mortgage rates between lenders. Look for the best refinance rates. Conduct thorough research before you apply for a loan, and get a mortgage quote from any lender you're considering. Take time to prepare for the application process.
Forgetting to fix up poor credit. If you have bad credit, you're unemployed, or your financial history appears volatile for whatever reason, you likely won't be able to get the best deal on your refinance. If your need for a refinance loan isn't immediate, you should try to fix up your credit and your financial history as much as possible before you apply for a new mortgage. Don't open any new lines of credit unless you plan to use them to shore up your credit score. Don't close any accounts, either. Closing old lines of credit can reduce the overall credit available on your credit report, which can damage your score. Try to paint a picture of perfect financial stability with your credit.
Forgetting about the long-term effects. When refinancing your home, it's easy to get caught up in how much cash you'll be able to access immediately or how much lower your monthly payments will be right away. These factors are often what motivate homeowners to refinance in the first place. But don't forget about the future. If you've extended your loan term, you might end up paying more money in interest overall than if you avoided a refinance altogether. There may be other long-term repercussions that will affect your finances in ten or twenty years. A refinance is a useful way to access equity in your home or secure a lower interest rate, but think long-term as well as short-term when deciding what refinance loan is best for you.
