Refinancing is often the best option for homeowners to reduce mortgage costs. It can allow you to get lower interest rates, hence decreasing your monthly payments. Keep reading to learn more about the necessary steps you need to take before applying for mortgage refinancing.
Know Your Home Equity
Having positive equity is extremely beneficial when applying for mortgage refinancing. Your house has negative equity if its worth is less than the remaining balance on the mortgage used to purchase it. This reduces your chances of refinancing at lower interest rates.
To calculate your home’s equity, subtract the outstanding mortgage from the home’s current market value. Though you only need 5% equity to qualify for a conventional refinance, many lenders prefer at least 20% equity, so make sure to carefully discuss the terms with your lender.
If you have positive home equity, you can save on mortgage insurance by switching from an FHA loan to a conventional mortgage.
You will need to provide several documents to prove your eligibility and ensure the smooth processing of your refinance loan application.
You will need to provide W-2s for the previous two years, information on your current home loan, latest pay stubs and your two most recent bank statements. If self-employed, you may also have to submit a copy of your most recent quarterly or year-to-date profit/loss statement, home equity loan or any line of credit you hold on your home and other documents required by your lender.
Depending on the type of mortgage and your financial circumstances, the lender can ask for additional documents. Ensure you follow the process carefully and fill in all the details correctly to expedite the process.
Lock Your Rate
Once you have decided on a lender and found a good offer, it is best to discuss the requirement to lock in your interest rate. This way, you can rest assured that your interest and discount points will remain the same until the end of the lock expiration period.
Some lenders may charge for a rate lock, while others don’t. The fee usually ranges from 0.25% to 0.50% of the total refinance amount. You can choose not to lock your rates, but if you decide to go for it, make sure you lock your interest rate before the lender finishes preparing your documents.
To learn more about refinance loans and how to qualify, reach out to the professional at Lynx Mortgage Bank LLC at 877-599-5969 or visit our website. We’d be happy to help—our vast experience and many years in the industry will be an asset to you.