Questions You Must Answer Before Refinancing

By: Huntsville Real Estate Expert Mike Manosky On February 21, 2015

Homeowners have a variety of reasons for refinancing their homes. Before you make a decision about refinancing your home, you might consider the following questions. Below is a summary of an article in RISMedia by Michele Lerner, a writer for

refinancingWhat are my financial goals?

Are trying to lower your monthly payment? Check out an online mortgage calculator to estimate your new payment. Other homeowners are choosing to refinance for a shorter term to pay of their mortgage faster and save interest.

Before you make the decision to refinance, the professionals advise making sure you contribute to retirement savings and college savings, pay off high-interest debt, and save 6-12 months of expenses, because reducing your mortgage payment period will increase your monthly payment.

Do I have equity in my home?

You need at least 20% equity in your home to qualify for a new conventional loan without payment private mortgage insurance. The alternative might be applying for an FHA loan that requires much less equity.

Do I have good enough credit?

Credit scores are critical under the new federal lending guidelines. Below a score of 620, you will have trouble qualifying for a new loan at all. It takes a score of 720 or better to obtain the best interest rates.

How long do I plan to stay in this home?

Mortgage professionals general tell borrowers to expect to pay 3% to 6% of the loan amount for a refinance. If you divide that loan cost by the annual savings you expect by a reduced mortgage payment, you can find how many years it will take to breakeven. Do you expect to stay in your home long enough to break even?

What are the terms of my current loans?

Make sure you know the terms of your current loan. Especially, make sure your existing mortgage does not have a prepayment penalty.

Do I have a second mortgage or a line credit?

If you do, there is added complexity to refinancing. You will have to either pay off the second loan or combine the two into one mortgage when you refinance.

Lenders have tightened up the approval process. Be sure to get professional advice from a lender about what levels of income, credit score, and equity you will need to refinance in your specific situation.

Information courtesy of Huntsville Realtor Mike Manosky.

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