When you first sign on the loan for your home, everything looks great and you’re ready to go. A few years down the road, you might want to refinance that loan to reduce the monthly payments or the interest rate. You’re hoping to save some money. Before you run out and refinance here are a few little tips that will help you get the best FHA refinance rate available to you.
Your Finances Affect your FHA Refinance Rate
Your very first step when refinancing should be to take a good hard look at your finances and fix any discrepancies that you can. While the federal program is more forgiving than conventional lenders, you will still be affected by your credit score, especially if you’re in the low five hundred range. A lot of the time if you are aware of the red flags on your credit, you can take the steps to either remove them or pay them down so they don’t become such a big factor. Improving your credit can help you qualify for a lower interest rate.
Next, you’ll want to go over your debt to income ratio. Ideally your monthly expenses will not be higher than around 43%, with your mortgage being no more than 31% of your entire monthly income. You want to be able to prove to the lender that you are in a place financially where you will be able to handle a mortgage payment without any problems. You had to do this when you secured the original loan, and since a refinance is essentially a new loan, you’ll have to repeat many of the same steps.
Determine your home’s value and then discuss with a loan officer how much of the value you can take advantage of. This step is simply there so you can know how much you’re looking at as a possible refinance loan. By determining the value beforehand you won’t be surprised when you apply for the loan if the value is less or more than you thought it should be.
Secure the Financing with the Right Lender
Once you’ve determined the status of your financial situation, you’ll be able to move on to the next steps for refinancing. Your first order of business should be to get pre-qualified. Pre-qualifying for a loan lets you know how your finances will be perceived by a lender and what you’ll be able to qualify for. Make sure you pre-qualify with each of the lenders you are considering.
After prequalifying you’ll need to compare the offers in front of you. It’s recommended that you never take the offer from the first lender you come to until you’ve compared that offer with a few others, a good number is about 3-5. Then, after comparing all of the offers, if you determine that the first lender will offer you the best financing, you can go with them. Otherwise go with the offer that you feel will work best for you. Sometimes this offer will have the best FHA refinance rate, other times its best because the monthly mortgage payment is the lowest. A good loan officer will be able to help you decide on the right loan.
When comparing offers make sure you look at all of the fees and the final total of the mortgage after you’ve paid it completely off. A refinance is typically done to secure lower FHA refinance rates, lower mortgage payments, and reduce the total cost of the loan overall. Sometimes the fees and closing costs are too high and they counteract the amount you would have been saving, making the new loan more costly. Other times the loan is extended back up to thirty years, which means by the time the loan is paid in full you will have paid more in interest even if you got a lower rate. So pay very close attention to that bottom line.
When it comes to refinancing you will find that it can be a very good financial move, as long as you have taken the steps to ensure an affordable outcome. It does take some work to get all of your finances in working order, and it can take some time to get everything for the refinance put together, but putting in a little extra effort now can save you thousands in the long run. It’s definitely worth your time to do it right from the beginning.
Learn what it takes to alter the term of your mortgage for the best FHA Refinance Rate here.