Money: that little piece of paper that seems to direct 99% of the decisions we make in life. OK, so 99% may be a bit of an exaggeration, but regardless of the percentage it’s not unreasonable to think that money is the driving force behind a very large portion of our decisions. With today’s economy two incomes aren’t uncommon anymore and are usually necessary. A very large percentage of the population is living paycheck to paycheck, and for most families the mortgage payment is the biggest expense they have. Well what if you could reduce that payment and free up a little extra cash each month? I would argue that most mortgagees would jump at the chance to do so, and in many cases, an FHA refinance is doing just that. Here are a few steps to help you save on your refinance.
1. Do a Little Prep Work
This little tip is one that is too often overlooked and it’s usually because the prospective borrower has no idea where to begin. So before you approach a lender for a refinance, you need to know where you stand financially and whether or not there are any areas you can improve on. Lenders, whether they are FHA or conventional, take a good hard look at your finances, and while it’s sometimes easier to secure an FHA refinance than a conventional refinance you still want to get your ducks in a row. The ducks I’m referring to are cleaning up any credit discrepancies, paying down existing debt if you have a high debt-to-income ratio and don’t make any major purchases before you refinance. The idea is to get your financial state as pristine as possible so you can qualify for better rates and terms.
2. Shop Around and Compare Quotes
When you’re getting an FHA refinance, this step is very important. Financial wisdom dictates that you can’t know what you can be approved for if you haven’t tried on different loans– so you really need to shop around to get the best refinance rates. This means that you should get a refinance quote from the lender you are currently working with and then you’re going to approach other lenders to get quotes from them as well. Why is it a good idea to approach a wide variety of lenders? Because then you can include both FHA and conventional lenders in the line-up to compare and determine for yourself which lender is going to be the best in regards to your refinance goals. As an added tip here; get the quotes on the same day or within a day or two of each other. Interest rates constantly fluctuate so you’ll be in a better position to compare if you’ve gotten same-day quotes.
3. Be Open to Negotiations
When you’re getting an FHA refinance it’s not like buying a cookie cutter loan from a loan store. You’ll want to get the loan that will better fit you and your financial needs so be picky but always be open to negotiation. When looking for the right lender having a basket of quotes from other lenders can come in handy because then you can show what other lenders are willing to offer you and use it as leverage. The loan isn’t set in stone until you’ve signed on it, and the negotiation process helps you and the lender come to terms on the loan so it works for both of you; negotiations are always helpful.
4. Closing Costs can be Tricky
To save money on your refinance you need to save money up front and over the life of the loan. Closing costs are going to be your biggest expense initially, so it’s important that you look these over carefully and negotiate away what you can. Oftentimes the lender will be willing to reduce some of the fees and in some cases pay part of the costs. Always ask– they can say no but they’ll never say yes if you don’t ask. Also, to save money over the life of the loan anything you can’t reduce or negotiate away make sure you pay up front. While it’s tempting to roll the closing costs into a loan, this will increase the expenses and may mean that you pay more over time than you would have otherwise.
5. Calculate Carefully
Before you close on your refinance, do some number crunching and make sure that the loan you are getting is really going to save you money. There are plenty of online refinance calculators that can help you determine what your initial expenses are going to be, what your break-even point is and how much you will save (or spend) over time. Don’t sign on the dotted line until you have done the calculations and are positive that the loan is going to offer a good financial benefit. If it doesn’t then walk away, you’ll save money by leaving it behind.
With the rates today as low as they are, many homeowners are seriously considering a refinance. You’re not alone in trying to save money on your mortgage. These tips can help you get the loan that works for you and the next step is to enlist the help of a professional loan officer that will guide you to the best loan for you.