There are many reasons to refinance your mortgage. Probably the most obvious one is to consolidate debts. You may also be able to reduce your interest rate. It can mean slightly higher or lower monthly payments. But even when it’s not the best option, it helps you manage your debts better.
Another reason to refinance your mortgage is to shorten its pay-off term. In the long run, it brings extra savings, as you won’t have to pay for interest. Although your monthly payment could remain the same or be slightly higher, the overall amount of interest paid will be lower.
Refinancing is an excellent option if you have good credit, but refinansiering uten sikkerhet can be risky if your credit score is less than perfect. When you feel like you can’t manage all debts, payment deadlines, and installment amounts, you should try to gather them into a single monthly payment. And to experience all those benefits, you must get the refinance approval first.
Improve Credit Score
If you’ve decided on refinancing, you must have some prior knowledge of your financial condition before applying for this loan. First, it’s important to ensure that your credit score is up to par. And second, you should have a low DTI, as it can play a vital role in the lender’s decision.
A credit score is a critical factor that often changes because many things affect it. For example, every loan, credit card debt, payment, and delay are included in this parameter. As such, it says a lot about your financial stability and consumer habits.
A favorable credit score (650-850) means you’re more likely to be approved for refinancing. But you can get approval even if this parameter is lower (500-650). Only the loan requirements will be more rigorous, which often means high-interest rates, prolonged repayment periods, and unfavorable closing terms.
The second option is to improve your rating, for which you won’t need too much time if you make the right moves. For example, you can repay credit card debts. Or you can settle all mortgage installments before applying. When your mortgage has a good standing, your chances for approval and securing a low-interest rate are higher.
Lower DTI Ratio
In order to improve your chances for a refinance approval, you need a solid DTI ratio. Lenders usually set this parameter at 40 or below. It means that they find you eligible for refinancing if your debts take no more than 40% of your monthly income. The lower DTI is, the better.
The best way to have low DTI is repaying all your debts. But even if you can’t do that, you should manage them well to ensure solid financial health. It can be done in two ways – either increasing the monthly installments on current debt and not taking any new or growing your income.
Prepare Documents
One of the common reasons your refinance application is denied is that you didn’t provide all the necessary documents. It can be a complex procedure, especially when applying to several lenders. In general, they all need the same paperwork, such as proof of income, credit rating, recent bank statements, etc.
But there can be some specific requirements, so make sure to read through all of the documentation your lender will request and include it in your application. The documents they need to review are your pay stubs, W-2 forms, tax returns, and other financial reports that show your income.
Your employment history is another factor in your lender’s decision. Be aware that it can make or break your chances of getting approved for a refinance. This check-up should be fast and simple, so you must provide lenders with accurate information and contact data. Cause if they fail to reach your employers, they can easily reject your application.
Fast Response
After checking your documentation, the lenders verify your information. They investigate your credit score and bank reports and contact your employers (even former ones). If there’re any errors in your papers, you have to fix them as soon as possible. That’s especially true for a credit score, which you should double-check before applying.
Obtaining a pre-approval is another way to increase your chances of being approved for a refinance. These letters are usually good for 60 to 90 days and signal that you’re serious about the process of refinancing your financial obligation. Just make sure you’re responsive to all lender’s requests during this period. That can speed up the entire procedure.
More on the importance of pre-approval learn from the following link:
Get Appraisal on Your Equity
You should do as much preparation as you can on your home before your application. You have to show lenders that you have enough equity of enough value to get approved for refinancing. Different lenders set different equity limits; it’s usually around 3-3.5%. Luckily, the real estate market is currently rising, which is good for refinancing applicants.
You can add up to the value of your home if you have made some improvements. These will help you gain better approval chances as your appraisal increases. These upgrades don’t have to cost a fortune, but they should leave good impressions.
For example, you can refresh the house’s exterior and interior with painting or pressure washing. Also, you can add up a bit of curb appeal by rearranging your yard and lawn. And decluttering and cleaning up the mess can also help.
Prepare a list of all repairs and improvements you made to your living space upon moving in. Appraisers will take note of that. They’ll tour your home looking for things that will determine its value. If it’s high, that’s a good sign for lenders to perceive you as eligible for refinancing.
Having a poor credit score or above-average DTI shouldn’t discourage you from refinancing. You can still apply for this loan and get an unfavorable deal with high interest or a long pay-off period. Or you can be patient, work on your financial standings, and get more favorable offers from lenders.