Minneapolis, MN: A refinance is usually the second largest financial decisions a person will make in their lifetime (the first was buying the house).
The process can be almost as stressful as when you bought the home. The difference this time is you are under no pressure to move. There are some things you can do to ease your pain and make refinancing in 2014 as easy as possible.
Good Credit
The easiest thing you can do in preparing to refinance is to make sure you have good credit. Generally speaking, a middle credit score over 620 will be acceptable enough to refinance, but having a middle credit score over 740 will get you the best mortgage interest rates
Debt to Income Ratio
Lenders will calculate a borrower's debt-to-income ratio and decide whether or not someone has enough money left over to serve as a cushion against late payments. Keeping total monthly obligations below 43% is pretty much required these days to get a mortgage loan of any kind, including a refinance.
Set a Realistic Interest Rate Goal
Set a reasonable interest rate goal. Know what you have in mind and what you are willing to pay, and lock that rate as soon as it becomes available. Gambling that rates may go lower by another 1/8th has proven time and again not to be a smart decision.
Picking a Mortgage Company
I'll save you a lot of the boring details, but understand that while your brain says it is probably easier and best to just contact your current mortgage company to refinance, almost without fail, that is your worst and most expensive option.
Contact your local mortgage broker, or the broker who originally did your mortgage loan. I promise it is well worth your time to shop with someone other than who you make your mortgage payments to today.
Refinance Mortgage Companies to Avoid
Understand that all mortgage companies get their money from the same source on the same day at the same time. They also all underwrite to the same rules, and have the same basic closing costs. No big lender on the internet can offer anything better than anywhere else. But generally speaking, the more a lender advertises, the more expensive they'll be. Somebody has to pay for all those TV and radio ad costs, and it is always you. By picking a smaller local lender, you can usually save at least .125% to .25% in your interest rate.
All Loan Officers Are Not Equal
Finally, when doing one of the largest financial transactions of your life, be sure to only entrust it to a full licensed Loan Officer, not just an application clerk. Fully 80% of loan officers in general, and about 95% of loan officers at banks are NOT licensed. YIKES... All loan officers are required to have a tracking number, called an NMLS number. This number is not a license. So be sure to follow this link to learn more on how to ask your loan officer if they are fully licensed or simply registered. Then only work with a fully licensed loan officer.
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