Things you should do before attempting a home Refi

Posted on May 3, 2009 by hankbailey

The first thing anyone should consider when looking at a home mortgage refinance is to compare the interest rate on your current loan to how much you will really save each month by refinancing your mortgage. Then you have to consider the cost to refinance. If it costs you $5000 to refinance your loan just to save $200 a month, it will take you almost two years just to break even.

The next thing I want to bring up is a touchy subject for homeowners, especially those that bought a house since 2005. Find out from an appraiser how much your home is worth. Home values have dropped in certain areas and segments of every market. It should be your “first” next step to find out whether your home has equity or if you are upside down with your mortgage. The existence of and amount of equity will determine if a refinance is a possibility.

Next, before running down to the bank to sign an application, you should check your credit history. You can get a copy of your credit history and credit score from myfico.com or freecreditreport.com just to name two sources.

Due to new algorithms in credit reporting and new credit guidelines two things have happened. Lenders have raised the credit scores required to get approved for the best loan programs and best interest rates. Your credit score also might have gone down. That’s right. FICO ‘08 has had the tendency to lower credit scores for some based upon how the rules have changed. Learn how to build your credit score anew today.

Finally, have your financial documents ready to hand to your lender at your first meeting. You’ve got to have your paperwork in order before you can refinance. Gather your W-2, a current paycheck, copies of your last two year’s tax returns, copies of your bank accounts, retirement accounts, and other assets.

Now you are ready to go! Just remember not to get sucked in by sub-5% interest rates just because they sound good and you can brag to your golfing buddies about your mortgage rate. Based upon your overall situation a home refinance may not make sense.

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