When you refinance your home you do so hoping to make the investment work better for you. For some people this means cashing out the equity and rolling it into different investments. For others, it means adjusting the terms and creating a new loan that enables the homeowner to keep more money and spend less over time. Regardless of your reasons for refinancing, the key to a successful refinance is to make sure your FHA refinance loan rates are better than the rates you currently have. While you may not be able to dictate the actual rate offered to you, there are a few things you should be aware of that may help reduce the rate you are given.
Your Finances and Your Rate
It’s common knowledge that when refinancing you will be given a rate that reflects the credit score that is shown on your report. When going through the Federal Housing Administration you can get good FHA refinance loan rates even if you have a score that would be considered low through a conventional lender. However, if your score dips lower than the average, you may be looking at increased rates. So your first step when refinancing is to clean up your finances. If there are any discrepancies on your credit report, get them taken care of and removed. If you have excess debt that you know will impact your score, do everything you can to reduce or pay off the debt entirely. The idea is to get your financial blueprint as optimal as possible because when you get low FHA refinance loan rates, you pay less over time.
Along these same lines, if you know you will be looking to refinance but it won’t be for a year or two, then manage your financial situation in a way that leaves your blueprint looking amazing. So make all of your payments on time, make them in full, responsibly handle all of your debt and any lines of credit you might have. Get a credit card and pay it off every month, or open a line of credit with your bank. Positive activity on a financial record will help to boost your credit score.
Driving Down FHA Refinance Loan Rates
If you are able to prepare in advance for a refinance, that is ideal. However, it’s not required that you do so. When it comes to the refinance process itself there are things you can do that may help to reduce the interest rate. But of course, your credit score will be the biggest determining factor.
Often times when refinancing the homeowner will do what is known as a no-cost refinance. While it isn’t necessarily a no cost option, it does allow you to pay much less up front so the initial cost isn’t quite so taxing on your wallet. With the no-cost refinance the closing costs are rolled into the mortgage and you pay them down over time. The downfall to this option is that the interest rate is usually higher. So if you want to reduce the rate, the no-cost option may not be the best for you.
Another way to reduce the rate is to pay points when you refinance. A point is a certain percentage of the loan that you pay up front. When you pay points on a mortgage the interest rate is reduced. The more you pay, the more the rate is reduced. For homeowners that intend to be in the home long term and who don’t intend to refinance again for a while, pay8ing points can be a very smart financial move. It does require more out of pocket up front, but it can save you thousands by the time you’ve completed all payments on the loan. You don’t want to overlook this option.
Last but not least, shop around and never settle for the first offer until you know it is the best. Each lender is going to offer something different so if you’re not comparing offers, you are potentially losing money. Comparison shopping for your loan is an important part of the refinance process.
While there are multiple methods for reducing the interest rate, the basic starting point is with your financial blueprint. Do what you can to repair it and then talk to your loan officer to see about getting a refinance. At that point you can discuss all of your options with the loan officer and lender to determine what steps you can take, through them, that may reduce the rate.