By the time you’re ready for a mortgage, rates could be high or low, a factor that is beyond you to change. But even if this is the case, that does not mean you cannot obtain the best rate from the current market’s baseline.
In today’s climate of rising rates, many borrowers scramble for the best rates they can find, before the new highs kick in. If you are among this influx of refinancers, the following tips could prove handy in helping you achieve this aim.
Getting smart with your credit
Your credit is the most important factor when applying for refinancing. Your score is more than just a number. It tells the lender what kind of borrower you are – if you pay your balances in full, or only pay the minimum and let the remaining revolve in your credit card account, for example. It reflects whether you are a responsible borrower or whether you pay your dues on time. Your credit data tells your financial situation. The lower the score, the lesser is your chance of qualifying for a home loan refi.
That is why simple habits as paying your bills when due or your balances in full can help you sport a good score that appeals to your lender. These are smart credit practices that can really give you an edge when applying for financing. Yet, when taking out a major loan such as a mortgage, you may have to run the extra mile and employ the techniques below before filing and forwarding your application:
- Look for errors. You are entitled to one credit report per year from the three credit reporting agencies: Experian, TransUnion, and Equifax. Scrutinize the details of your report and see if the charted information are consistent with your credit activities. If there are anomalies, make sure to call the creditor involved to dispute the claim. They are liable to clarify and investigate the matter when received. Contact the agency as well to let them know that you are currently disputing a debt.
- Keep your balance below 25 percent of your available credit. Another important aspect that lenders look for in your report is your credit utilization ratio. This reflects your credit spending habits, if you are using only the minimum, or are going over your credit card limit. The lower your utilization ratio is, the better.
- Keep steady. Yes, being debt-free and carrying no credit card can seem the smart thing to do to avoid easily getting into debt. However, having a credit card and using it regularly can actually help you build credit history, which is vital when applying for financing. By keeping steady in your credit card usage, using it only to make minor purchases and paying off the balances at the end of each payment cycle, you can establish your creditability and gain easy access to various loan programs in the future.
Finding the right loan
Loan programs vary and each cater to a different purpose and need. Before you settle into a program, do your research first and evaluate your own needs. Which among the existing programs provide the most favorable refi program for you?
- No such thing as “no-cost.” Zero-cost refinance programs are all over the market. Many lenders market this program sounding like free lunches but it is not. Typically, lenders compensate for this “zero-cost” at closing in the form of say, a higher interest. Now a single point difference in interest may not sound like a big deal at first glance, but in actuality, it can save you thousands on interest payments in the long run.
Remember that lenders use the best case scenario for such adverts: an excellent credit score, low LTV, high equity, minimum debt-to-income ratio. In the real world, there’s always one problem or two with most of the borrowers.
- Rethink cashing out. If your intention is to save on interest, a cash-out refi is out of your options, since it carries higher interest rates than non cap out refi programs.
- Is a shorter term possible? Sometimes it is not the percentage per se, but the totality of interest payments that the loan will cost you all in all. Refinancing to a shorter time, although with higher mortgage payments per month, can help you lessen your interest payments. Lowering your loan term also gives you access to lower interest rates.
Mortgage is a lot about timing. Refinancing five months ago, for example, may have given you record-low interest rates than refinancing today. Still, even when rates are beyond your control, you can still improve your timing through:
- Locking in fast. The longer you lock in on a rate, the higher your interest may be. In today’s climbing rate climate, waiting for a longer time may be out of the question as the numbers have been consistently pointing up so far. Talk with your agent to gauge the best time to lock in.
- Prepare and forward documents on time. To be able to lock in fast, it is important that you have your documents ready. Delays due to the unavailability of the necessary paperwork are sometimes what cost borrowers so much at closing.
- Put the future in perspective. How much did you pay for closing? Will you be staying in the home long enough to recoup this cost? If you are moving out of the property at the end of the decade, won’t you consider a lower-interest ARM compared to a fixed-rate mortgage?
Partner with the right people
Finally, it’s not all about the rates but also the kind of people you deal with. Look for professionals who have the knowledge and the experience to help you facilitate a successful refinance. You don’t want a lender who treats you as just another client. Find someone who takes the time to help you evaluate your needs and generate the best end for that need.