6 Reasons to Improve Your Credit Before Refinancing a Home Mortgage in 2018

Views: 53
Bryan Dornan

Refi Guide Founder

It is 2018, and we know that Donald Trump is going to be in the White House. We also know that consumer confidence is up, and home sales are accelerating.

The certainties beyond those in the housing market are not clear. Mortgage rates did rise after Trump was elected, but they have leveled off. Even though rates are a bit higher than six months ago, a 30 year fixed rate refinancing mortgage is still being advertised in the low 4s.

How long will this keep up? It is hard to say, but we think it is a good idea for possible mortgage refinancing customers to keep their credit scores as high as they can if they are thinking about refinancing. Here is why:

#1 The Fed Has Said It Will Hike Rates

The Federal Reserve already upped rates in December 2016, which contributed to rates inching higher. The Fed raised interest rates multiple times in 2017. So far the Fed has kept the interest rates steady in 2018.

If this is true, mortgage rates are on the way up, and you will pay more interest on your mortgage.

With higher rates, it will pay for home refinance prospects to have as high a credit score as possible. The best refinancing mortgage rates will always go to the consumer who has a 740 score or higher. Although you can still get a good rate with a lower score, the best rates are for the prime borrowers.

#2 Refinance Into a 15 Year Loan

Even if rates are on the way up, you still may want to refinance. Some consumers may have a loan from a decade ago, and they could still see a lower rate, and possibly could refinance into a 15 year mortgage.

People who do this will pay much less in interest. If you decide to pull the trigger on a 15 year refinance, you want to have high credit scores to lock in the lowest rate possible.

#3 Higher Prices Mean Higher Equity

Prices are on the way up on houses, which means you will have more equity to play with. One of the most common reasons for people to refinance is to take out equity to pay for large expenses.

This is called cash out refinancing. These loans largely disappeared during the mortgage melt down, but they have returned now that home prices are almost back at pre-recession levels.

Some of the reasons that you may want to pull out equity include a home renovation, paying for a college education, or starting a small business. A stronger housing market will cause home values in many parts of the country to spike, and you may want to take advantage of that bump in equity.

Once again, the best way to refinance your mortgage is to keep your credit score high so your borrowing costs are low.

#4 More No Closing Cost Mortgages May Be Available

We think that the increase in economic activity with a Trump administration, coupled with a decrease in financing regulations, will lead to more exciting mortgage products being available to consumers.

One of these could be more no closing-cost refinance loans. These types of a refinancing mortgage have the closing costs wrapped into the new loan. While your rate might be a bit higher, it still will be quite low, and will be lower if you have the best credit scores.

A no closing cost mortgage could be the best bet if you want to sell your home within a few years, according to many experts.

#5 Higher Credit Scores Will Always Save You Money

You can never go wrong by keeping your credit score as high as you can. When you are first looking at mortgage refinance options, you will have more good options available to you with a higher credit score.

Also, don’t make the mistake of getting a mortgage refinance approval, and then running up credit card bills before you close. You will always want to keep your score as high as you can before the loan is closed.

#6 For FHA, You Will Have More Options

FHA mortgage lending usually come with very low rates because the loan is backed by the US government. But did you know that mortgage lenders do have the option of setting minimum credit score criteria? Find out if you will need the services of a bad credit mortgage lender with your credentials.

If you keep your credit score above at least 680, you will have many more lenders with which to work. This will likely lead to you having a lower rate.

Something to Reflect On

When you are shopping for a possible lender to approve a mortgage refinance loan, you will always find that you have far more options when you keep your credit score as high as you can.

If you have a higher credit score, this indicates that you are a more responsible borrower. More lenders will be willing to extend to you more favorable loan terms with a higher credit score.

So, you should always do your best in the months leading up to your loan application to keep your score as high as you can. Pay down your balances, pay your bills on time, and do not open too many new credit lines.

If you do these things, experts say that you will be able to qualify for the best rates. This will be especially critical if the economy takes off under Donald Trump and refinancing mortgage rates go up significantly.

About Bryan Dornan

With over 20 years in the mortgage industry, Bryan Dornan has started several companies, such as the Lead Planet, Mortgage Lenders Plus and the Refi Guide. Mr. Dornan has written hundreds of finance related articles in an effort to promote home-ownership to consumers across the United States.