When you buy a home you do so using somebody else’s money, which simply means that you borrow the funds from a lender and take out a home mortgage. Most of the time this mortgage is not the final mortgage you will be putting the final payment on. This is because most homeowners at some point during their ownership of the home choose to take out a refinance. There are many reasons for this, some of which include lowering payments and interest rates or even cashing out the equity. Regardless of the reasons, it’s safe to say that most Americans will refinance. With that thought in mind, here are some FHA how to refinance tips that will help you when it comes to your refinance.
FHA How to Refinance with Imperfect Finances
The best tip anyone can offer you is to plan ahead. Before you get the refinance process started, you’ll want to take a good hard look at your finances. First, consider your debt to income ratio. Most of the time FHA lenders like to see that the debt to income ratio is in the low forties range. This includes all of your combined monthly debt including the mortgage, car payments, and credit cards. The mortgage ideally will not be more than 31% of your monthly income.
You also need to get on top of and stay on top of your payments. If you’ve been delinquent in the last 12 months or have made multiple late payments, these will be red flags and you may be declined for the refinance, so plan ahead long before you refinance and take care to make timely payments. Last but not least, pay attention to your credit score and fix any discrepancies that might be on it. If you can, pay down credit cards that might be dropping your numbers.
The Federal Housing Administration allows people to refinance their homes even if they are dealing with finances that are subpar. However, just because they make it possible doesn’t mean you shouldn’t take the steps to get on top of your finances. By reducing your debt to income ratio and making timely monthly payments, you are in effect telling the lender that you are a capable, responsible homeowner and that you can handle the requirements of the refinance. If your finances are in a bad shape, you will either be declined or you may end up with a higher interest rate. By planning in advance and following these small FHA how to refinance tips, you increase your chances of approval at a good interest rate.
Securing Your New Home Mortgage
Once you’ve gotten your finances in a good place, you’ll want to start shopping around for a lender. Whatever you do when refinancing, do not go with the first quote offered you until you have compared the quote with multiple offers by multiple lenders. Shopping around is an important part of the process so take the time to do this. When contacting the lenders, make it a point to contact all of your potential lenders within the same day or the following day. Interest rates constantly fluctuate. By securing your quotes in the same time frame you’re getting the most accurate, up-to-date quotes for better comparison.
Pay attention to the bottom line on every one of the lenders and ask them about their fees. A refinance is only beneficial if it helps you in the long run. The bottom line you’re looking at is the total you will be paying out in interest over the life of the new loan in comparison to the old loan. Compare the amortization schedules for both loans to get a fairly accurate idea of what you will be paying. Once you’ve compared amortization schedules, compare the fees for each lender. All of these fees can add up to quite a hefty sum of money that you either pay out up front or you roll into the mortgage. The less you have to pay, the better.
Here is a quick recap of FHA how to refinance tips. Scrutinize and clean up your finances. Don’t wait until you’re refinancing to look at them. Start cleaning them up now so you’ll be ready when you decide to refinance. Reduce your debt-to-income ratio, clean up your credit, and make sure you make all of your payments on time. When it becomes time to refinance, compare, compare, compare. Shop around and compare the quotes, the fees, and the bottom line of all the lenders you are considering. This refinance can be a great step for your finances but only if you’ve done the homework and secured the loan that works best for you.