How do I refinance my mortgage loan? You might have asked yourself this question as you listened to news reports of dropping mortgage rates. A mortgage refinance offers a prime way to knock down your home loan interest and save on monthly payments. But not everyone qualifies for a refinance? What’s more, not everyone who qualfiies can get a lower interest rate.
Build Up Your Credit Score
A mortgage lender migth approve your application for a refinance if you have a 650 or 680 credit score But they’re not going to offer you the most favorable interest rate. A credit score 740 of higher ensures the best interest rate, which is needed to bring down your current home loan payment, says Bankrate.com. What does it take to increase your credit score? Always, always, always pay your bills on time. This includes credit cards, auto loans and most importantly, your current mortgage payment. Don’t naively think that your lender will approve a refinane if you frequetly submit late payments.
Mortgage Closing Costs
A mortgage refinance isn’t free. And regardless of how badly you need a lower house payment, lenders will not refinance without first discussing how you plan to pay the closing costs. Closing costs on a refinance will costs between three and five percent of the mortgage balance. There are two ways of handling this expense. You can either go in your pocket and write your lender a check, or you can add the fee to your new mortgage balance. The latter isn’t a painful and lets you retain your personal savings. If you choose to incorpate fees into your balance, understand that this decision will increase the mortgage balance and perhaps your monthly payment.
Regardless of whether you already have a mortgage and have never missed a home loan payment, your lender will not approve your refinance if you owe an excessive amount of debt. Why? A refinance doesn’t change the conditions of your existing mortgage. A refinance is a new mortgage, and the rules for qualifyign are the same as when you qualified for the original mortgage. Here’s something to consider. Lenders do not approve home loans if the mortgage payment is more than 28 percent of an applicant’s gross monthly income, or if total debt payments are more than 36 percent of his gross monthly income, says the Home Loan Learning Center.
Unless you’re prepared to face your debt and create an elimination strategy to get rid of credit card debt, or at least knock balances to less than 50 perecent of the credit limit, you can kiss refinancing good-bye.
*** If you don’t qualify for a refinance, ask your mortgage lender about a home loan modification program to help lower your interest rate and house payment.