Are you ready for a refinance loan? Maybe you seek a lower interest rate, or maybe you want to get cash back on the transaction?
Whatever your motivation for applying for an FHA refinance loan, there are some important questions to ask yourself-the answers will help determine your readiness for the new loan.
Have I Checked My credit Score and History Lately?
All consumers are entitled to a free credit report, which you should review long before attempting a mortgage refinance.
If you find any evidence of identity theft, outdated or erroneous information, you will need time to contest that problem. Contesting your credit report could involve (in the case of identity theft and related issues) filing police reports, working with investigators, etc.
Do not waste your time paying for third party “credit repair” services that don’t work. Do not fall for the promises some make that they can remove accurate negative credit information from your report-they cannot.
Have I Examined My Most Recent Mortgage Statement?
You will need to know how much you are currently paying, the interest rate, the date of loan maturity, and other important details.
Refinancing to get into a lower payment (for those who wish to do so) will require you to do the numbers on your current payments and project what savings might apply to you after refinancing. It’s also helpful to know how much refinancing will cost over the lifetime of the mortgage.
Do I Know What My Home Is Currently Worth?
FHA refinance loans will require an appraisal and the loan amount is based on the results of that appraisal. The one exception is for FHA-to-FHA Streamline Refinance loans, which have no FHA-required appraisal OR credit check. Lender standards may apply.
Have I Applied For Other Types Of Credit Lately?
A general rule of thumb for refinance loan approval is to avoid opening any new lines of credit ahead of your loan application.
It’s best to treat your refinance loan application like the original mortgage-don’t apply for other credit at the same time. A hard credit inquiry can result in a lower FICO score, and for borrowers who are concerned about their credit that is a factor to be aware of.
Your lender will want to see that your outgoing debt is not higher than a certain percentage of your monthly income; new credit lines have the potential to change that percentage. Your potential debt could be a factor depending on circumstances. Be sure to ask a loan officer about this issue if you aren’t sure how your credit card balances can affect your ability to be approved for a home loan or refinance loan.