There are many reasons to consider refinancing your house. Perhaps you want to take advantage of lower interest rates, or you want some cash for home improvements. But how do you know if you are eligible to refinance your mortgage?
First, what does refinancing mean?
A refinance is when you take out a new loan that pays off and replaces your old one. Many homeowners refinance to lower their monthly payments. There are often closing costs and fees associated with refinancing, and sometimes you could end up paying more over the life of your loan if you refinance with a lower payment and a longer term. You might be a good candidate for a refinance if:
You’re organized and in good shape, financially speaking.
One major factor in qualifying for a refinance is your financial stability. Payments on your existing home loan should be current, and you should have a healthy credit history and credit score. Once you officially apply to refinance, you will be asked to provide documents such as W2s, pay stubs, bank statements, tax returns, and others that support your application. You’ll want to have all of these ready, since they help your lender verify things like employment and income.
Your home has built enough equity.
Equity is the value of your home minus any outstanding loans against it. If you’re evaluating a cash-out refinance as an option, this is a number you’ll want to carefully consider. A cash-out refinance is when you qualify to use some of your home’s equity as cash for a valuable purpose, such as a home remodeling project, college tuition, or to consolidate high-interest non-mortgage debt like credit card debt. If for some reason your home has dropped in value and you have less than 20 percent equity, refinancing could cause you to have to acquire private mortgage insurance and thus add to your mortgage payment rather than help reduce it. Remember: Every borrower and financial situation is different.
Curious about the process of refinancing a home? Click here to read our step-by-step guide to refinancing with Mr. Cooper.