Refinancing a home loan can be stress-free when you consider these tips.
So you’ve heard about the benefits of refinancing a home loan. It’s true some homeowners do it to lower their interest rate, get cash out, or gain financial stability. Others refinance their mortgage to consolidate debt or pay off their mortgage sooner. One of these reasons may in fact be yours. And between creating a new, affordable monthly payment and lowering your borrowing costs, selecting a new loan term for your refinance can be a tricky balance. The good news is we’re here to help. We know you’ve made up your mind about refinancing so here are some useful tips to help you have the smoothest home loan refinance possible.
1. start with our refinance calculator
Will refinancing a home loan actually save you money? A good way to help gauge how much money you’ll save is to use our refinance calculator. It factors in your original loan amount, APR, and term; your new loan amount, APR, and term; and various fees associated with the transaction to come up with an estimated new monthly payment and savings. Using a refinance calculator when refinancing a home loan can help you shop for the right loan, give you a good idea of what to expect, and calculate how long it might take you to recover from the costs of refinancing. Doing your own research can be beneficial, but keep in mind this is an estimate—you’ll have a better idea of your real payment and costs once you get on the phone with a loan originator.
Here’s a tip to keep in mind: One thing that’s common among borrowers who refinance is that they’re less concerned about their rate, unlike borrowers who are taking out a mortgage for their home purchase. They’re generally more concerned with their monthly savings than their rate. Borrowers tend to think it’s all about the rate, but when you’re refinancing a home loan, the focus is more about your savings (or, for cash-out refinances, the amount of equity you’re tapping into).
2. build your equity
Speaking of equity, the more equity you have in your home, the easier it is to refinance. With the exception of a few loan programs, most lenders will verify that you have at least a small amount of equity in order to refinance. That doesn’t mean a lack of equity should keep you from applying though! There are loan programs, like the FHA Streamline refinance, that are built especially for homeowners with little to no equity in their homes. Make sure you ask your loan originator about refinancing options for homeowners with low equity if you think you’ll have trouble refinancing.
3. figure out how you will repay the loan
Once you’ve decided that refinancing is a financially wise decision that will benefit you, it’s time to sit down and figure out how you’ll pay back the loan. Are you taking out a HELOC to cover some of the cost of your home renovations and increase the value of your home? You may want to consider putting the profit you make from selling the house toward paying off the loan. Or maybe you’re doing a cash-out refinance to pay down some other debt. Still, you’ll want to assess your finances (especially with your financial advisor) and come up with a plan to pay off the loan.
Borrowers tend to think it’s all about the rate, but when you’re refinancing a home loan, the focus is more about your savings.
4. get familiar with the process
You may think refinancing a home loan is just a couple of phone calls here and an email or two there. Make no mistake, refinancing can be a quicker process than a home purchase. However, most of the steps of the process still apply so you should get familiar with the home loan refinance process.
Just like when you take out a mortgage for a home purchase, once the process starts, you’ll want to consult your loan originator before you take out a line of credit, change jobs, transfer large sums of money, etc. The analysis an underwriter makes is based on your finances as they are today. Whenever you make changes, it requires another look, which can slow down the loan process and potentially even change the terms of your loan. Ask before you do anything that could jeopardize your credibility with your lender to ensure the process goes smoothly.
5. shop around
It’s all right to talk to multiple lenders. Don’t be afraid to chat with a few different companies and get a Loan Estimate from everyone you talk to. A Loan Estimate is great because it outlines the offer they’re willing to make in detail, which allows you to make a clear comparison between offers and can help you more easily decide which lender to choose.
It’s all right to talk to multiple lenders. Don’t be afraid to chat with a few different companies and get a Loan Estimate from everyone you talk to.
6. be careful about buying down your rate
These days, the average time an individual owns their home is often shorter than the time it would take them to recuperate the closing costs. If you choose to buy down your rate, there are many tools available online that can help you do the math. And, as always, your loan originator should be able to calculate this for you over the phone, so consider giving them a call.
7. factor in fees and closing costs
When you’re refinancing a home loan, you have to pay many of the same fees you would with a home purchase. Property taxes, homeowners insurance, and closing costs are just a few of these fees. Make sure you set aside some money to cover these expenses at closing.
As an alternative, some refinance programs offer “no cost refinancing,” which is a loan where the lender exchanges a slightly higher interest rate for reduced—or eliminated—closing costs.
8. don’t just sign your closing documents
Don’t just sign your closing documents—review them carefully. After all the moving parts of the process have settled, it’s possible that there may be a mistake or two on your closing documents. Mortgage lenders are legally required to give you a Closing Disclosure before you reach the closing table so take the opportunity to make sure these documents represent the offer you agreed upon at the beginning of the refinance process.
9. look into auto-payment incentives
If the lender you choose to go with offers incentives for setting up automated mortgage payments, take it as something to consider. What’s the harm in setting up automated payments and taking advantage of a lower rate or payment? Plus, when your bill is due, you won’t have to fuss with manually writing and mailing a check—it will automatically be taken out of your bank account. How’s that for convenience?
10. if you’re a Cardinal Financial customer, stay a Cardinal Financial customer
Have you taken out an FHA or VA loan with us before? Trust us with your home loan refinance and you may be eligible for a streamline refinance. Basically, a streamline refinance just means a streamlined process. It’s designed to be a simpler, smoother transaction that saves you time and money.
If you’re already a Cardinal Financial customer, it’s worth it to stay a Cardinal Financial customer. All of your information from your original mortgage is on file with us making asset and income verification simpler and faster; you get the benefit of faster processing and minimal credit requirements; there’s less paperwork for you to fill out and closing costs are generally lower; you may even be able to get a refund at closing for the cost of your appraisal! Think of a streamline refinance with Cardinal Financial as the fast track to refinancing an FHA or VA loan.
Did any of these tips help you with your home loan refinance? Tell us on social media!