Most Americans do careful research before they buy a phone, go out to dinner, buy a car and other purchases.
But how much research do they do before they do a mortgage refinance? If you are not doing plenty of study on which refinance lender to use for this huge financial decision, you should really reconsider.
By choosing the best mortgage refinance lender for your transaction, you could enjoy a lower interest rate, lower monthly payment, save on closing costs, and maybe even reduce the number of years it takes to pay off the lien.
We have assembled this simple guide to assist you in finding the top refinance lenders:
How to Get the Best Interest Rate
Not shopping around for your mortgage rate for a refinance can really cost you. You might be amazed to learn that 77% of all borrowers in the US only apply to one lender, the CFPB tells us. Also, CFPB research shows that looking for a 30-year mortgage with several lenders can lead to a variance in the interest rate of at least .5%. A difference of that much could cost you thousands or save you thousands in payments in only the first few years of the loan.
This is the reason that your first mortgage holder may not be the best choice for a refinance. Many people who have a first mortgage probably did not do a lot of shopping for that loan. Many are simply happy to be approved and be done with the paperwork and close the deal.
There is no reason to just go to the same refinance lender this time, especially if you did not do much shopping around or research for the first loan.
It is usually easy to figure out what kind of loan and interest rate you can get from most lenders. You do not usually need to give them a lot of documents. Normally, you will only need to provide the company with your name/income; SS#; address; what the home is likely worth; and how much you want to refinance.
The majority of mortgage refinance lenders will charge you a fee of $20 or so to get your updated credit report. Then, the lender will give you a standardized loan estimate that will tell you what the terms and costs are of a mortgage refinance with them.
Finding a Good Mortgage Company for a Refinance
Today it is very easy to shop for refinance lenders and interest rates. There are many alternative mortgage lenders today that you can easily find online. Some of the most common options are Quicken Loans, SoFi, and Loan Depot. Other home owners opt for Lending Tree, Nationwide Mortgages and Mortgage Hippo.
After you get a few quotes from one of these online lenders, you may wish to look at some local options.
Know What Your Credit Is
The better your FICO score, the better you will be able to qualify. The more mortgages you can qualify for, the better leverage you have. If you have a 740 FICO score, you can tell lender X that lender Y approved you for a mortgage at a lower rate. See if you can play different lenders off each other so you can save big.
If you need to refinance with bad credit, then you need to be looking in the right places and speaking lending professionals that have experience with this type of financing. with If you have credit ratings that would be considered below-average then you may need to consider FHA or subprime lenders.
Try a Local Bank and Credit Union
Your local bank could provide you with a very good interest rate on a refinance. Another very good option is a credit union, which is a nonprofit organization. They often offer some of the best rates on mortgage refinances. Credit unions issued a larger amount of mortgages in 2015 than ever before. Still, credit unions are responsible for less than 10% of all mortgage loans. But this is much more than the 5% they issued in 2010.
Look for Objective Advice
It is understandable that a mortgage lender may be a common source of home loan advice. But as helpful as refinance lenders can be, they may not be your most objective source of financial information. It is important for you to consider carefully whether a refinance is right for you.
Here are some factors to consider on whether you should do a refinance or not. These various factors can affect the type of lender you select.
- Will rates go up soon? The Federal Reserve has raised short term interest rates three times in the last year. This does not always mean that mortgage rates will climb. They have gone up from a year ago, but refinance rates are still very reasonable. You should be watching to see if rates are going up much, but do not assume that they will rise just because the Fed raised its key interest rate.
- Is your home worth more? Homes generally are appreciating in 2017, so more people are doing a refinance to pull out their equity. If so, it could be wise to pull that cash out to do a home renovation that adds to your property value.
- How much will you save in payments? You have to carefully consider how high your current rate is and how much it will drop with a new mortgage. Also, figure in refi costs including closing costs, credit check, origination fees and appraisal fees.
- How much equity do you have? You should have at least 20% equity in your home before you refinance. If you don’t, you will have to pay for mortgage insurance, and that is a substantial, additional monthly cost. If you do not have any equity, you need to make sure that you are shopping with companies equipped to supply you with a 100% mortgage.
- Will you save enough for it to be worth it? You will spend somewhere between 3-6% of the loan value in closing costs. So, you have to see how long it will take to recoup the costs. For example, it would take 30 months for you to break even if your closing costs were $3,000. If you decide to move before that 30 months is up, you lost money on the refi.
- Can you document your income? If you are own your own business or have difficulty documenting your income the traditional way with W2’s and pay-stubs, you likely need to for stated income mortgage lenders.
- How old is your loan? If you have been paying on your home loan for more than 10 years, refinancing is going to add on interest costs, even if your rate is lower by a good margin. Interest payments are always front loaded. The longer you pay on the mortgage, the more you are paying principal.
- Should you change loan type? You need to have some idea of how long you will be in your home. If you plan to move in three years, you might consider getting a short term ARM loan and save more on interest.
The Bottom Line
Deciding to do a mortgage refinance is an exciting but complex decision. You should carefully think about all of the above factors before you decide on a lender and whether you should refinance.
References: How to Choose the Best Mortgage Refinance Lender. (n.d.). Retrieved from- https://www.redfin.com/blog/2016/01/how-to-choose-the-best-mortgage-refinance-lender.html