In today’s real estate market, refinance loan rates are hovering at historical lows, with the average being in the 4% range. For millions of homeowners the potential savings on their home mortgage by refinancing into a new loan and securing a lower rate are extremely enticing. Who doesn’t want to save a couple hundred a month, or thousands of dollars over the life of the loan? Of course, there are times when you think you can get a great rate only to discover that your finances aren’t what you hoped or your home didn’t appraise for quite enough, and you’re stuck with a higher rate. Rather than dealing with this disappointment, here are a few things you can do to increase your chances of getting a better rate for your refinance.
Your Credit Score: Get Clear on Your Finances
When you apply for a refinance to get lower refinance loan rates, the bank is going to want to know your entire financial situation. They need the ins and outs of your financial history, your assets, your credit report, your credit score, your job history, and more. It’s your job to make sure all of this is in place before you apply for a refinance. A good place to start is with your credit report. Contact the reporting agencies and get a report from each one so you know what is showing up on your history, and whether or not you can get anything off. Oftentimes homeowners will pay off a credit card or another loan to reduce the debt-to-income ratio. Removing those things on your report that act as red flags is a good way to increase your chances of getting a good refinance rate.
While you’re cleaning up your credit report, do what you can to get a clear financial history as well. Lenders don’t like to look at a refinance application and see that the homeowner has missed multiple payments, especially on the home. They need to know you will make your home a priority when paying bills. Even if you’re not planning on a refinance. You never know when you’ll want to refinance or what the impact will be of those missed payments. Also, keep a steady job. Obviously, there are situations where this isn’t possible, but overall lenders like to see that the job you have has been your job for a couple of years at least. It’s even better for you if your pay has increased in that time.
It’s also worth mentioning your assets. If you have a decent investment portfolio or a decent list of assets, this will go a long way with your refinance. The assets are kind of like a cushion for the loan. If you were to default, you do have assets that can help cover the cost of the loan so you may appear as someone who is less of a risk.
Refinance Loan Rates and Your Lender
When you choose to refinance your home mortgage it’s important to realize that not all lenders are created equal for your situation. Every lender has something they can offer you, but some will be able to give you better offers than others. In fact, by shopping around you may find that some lenders offer you refinance loan rates that are a whole percentage point lower than the competition. That percentage point will make a huge difference in your loan. So make sure you shop around. And this doesn’t mean you get a quote one week then a second quote the next week. Get multiple quotes from a variety of lenders all on the same day if you can. This will give you a more accurate assessment of what’s available for you. Bear in mind that there will be factors that affect your overall savings for the loan. These factors include fees, APR’s, whether you’ve locked in the loan rate, lender requirements, home values, your debt-to-income ratio, etc. So the base rate that the lenders give you is a starting point, but it’s not a guarantee until the loan is locked into place.
There are many factors that come into play when refinancing. All of these will have some impact on the loan. However, if you’ve prepared in advance and gotten your finances in the best state they can be in, you’re getting out of the gate with a good advantage. In addition to this, shopping around really does make a difference on your loan, and, of course, your relationship with the lender will help. They may be more apt to give you a loan if you have experience with them and they know you are someone they can trust.