Do you have a home you’ve been in for quite some time but don’t know how to take advantage of the equity? Maybe you should decide to refinance your home. A lot of homeowners learn that refinancing is a great way to open up different options. They have a choice of relieving other debts, opening up some money for an investment in a new property, or just adding value to their current property. If you are a homeowner here are some ways to make this process a lot easier.
How to Apply for a Refinance Loan
Before you make any moves it’s important to know what goes into the application process– it’s like learning to crawl before your first step. First, learn the requirements. Take a good look at your equity, income and credit. If you find that any of these items are not really at a stable level you may want to reconsider a new financial strategy until they’re in order. If however, they are stable or you’ve taken the time to bring them to an adequate level, have all the necessary documents like a W-2 form to measure income, and your work history. A lender wants a great record from the past 12 months of on time mortgage payments. Remember when your mother told you to make a good first impression? Well, that advice definitely applies in this case because a lender has the last say of approving your loan request.
Learn Some of the Pros and Cons of Conventional Refinancing
There are both advantages and disadvantages of a conventional refinance situation. If you don’t have at least 10% equity in your home and a credit score above 600, then it’s highly unlikely you’ll be considered for this option. Lenders need to save their butts from the fire. Wouldn’t you want an umbrella that can at least withstand a basic rain storm? Lenders want a bit of security in case something happens. Having a quality score and equity gives them more assurance that you aren’t the type of client that brings nothing to the table. The good thing about having this amount of equity and credit score is that you won’t incur back end fees or pay a ridiculous premium costing you hundreds to thousands of dollars. Also, you can actually get more money from your equity in the conventional cash out option.
Are FHA Loans Better for Refinancing?
It all boils down to a few things; are you looking to save money upfront to fund different things like a new vehicle or paying off debt? In this case the federal government refinancing is a good temporary solution because you may not have the money for a substantial down payment right away. You can easily proceed with equity at 3.5% and a credit score of 580. However, everything changes if you have a lower credit score than 580. Most lenders will require 10% and above depending on the level of credit. This is a popular option for homeowners because there’s less paperwork, therefore the process of applying for a FHA Refinance is much quicker. As an added bonus it’s a lot easier to close on a new property too. However, you will incur a premium on a monthly and yearly basis and could easily add more to your balance as time progresses. You may just consider a higher interest rate on your mortgage if you feel more comfortable. Speak with your lender to find the best option.
Consult Different Lenders to Seek More Options
Find out exactly what each lender has to offer for a particular refinancing option. Some lenders can provide a great plan for a no-fee refinance strategy. In this particular option you don’t have to pay upfront costs. If you are comfortable with rolling the costs into the back end of your mortgage or paying it through a higher interest rate you can actually use the extra money to renovate your home. This will effectively increase the market value and is a great way to salvage a higher mortgage because there can still be some room for profitability if you intend to sale. Just make sure you live in the home for the required amount of time. Research online or find a suitable lender to give you the residency requirement in your state.
It may seem a bit tough to refinance your home but it’s actually a lot easier when you have a plan. Learn the difference in refinancing options and speak with lenders to see what plans they offer.