If your current mortgage is no longer the ideal one for your needs, it may be worthwhile to refinance. By refinancing, you may be able to reduce your interest rate, get rid of PMI, switch between adjustable and fixed mortgage rates, or make other changes that save you money.
Refinancing has associated costs in the form of fees and closing costs, however. So when you decide whether to refinance, you have to take those costs into account and figure out if it is worth it.
Just as home purchase loans vary in terms of cost, so do refinances. Below are a few tips to help you refinance affordably.
- Improve your credit score and debt-to-income ratio. When you refinance, the lender will look at the same qualifications they did when you first bought your home. That means that your credit score and debt-to-income (DTI) ratio are critical. Try to raise your credit score and lower your DTI ratio before you apply for a refinance if possible. The more you can optimize both, the more competitive your borrower profile will be. With strong qualifications, you might qualify for a more affordable interest rate. During your consultation, you can tell us about your financial scenario, and we can give you personalized suggestions for how you can improve these metrics.
- Compare interest rates, fees, and closing costs. Just as home purchase loans vary with respect to costs, the same is true for refinancing. There are three costs you need to pay attention to: the interest rates, the fees, and the closing costs. Many people refinance specifically to decrease the interest rate they are paying, so that one is a given. For the fees, there are some fees that are set, and others that may vary when you are comparing your options. The application and the underwriting fees, for example, can be different for different lenders. So can the origination charges. So, see where you can find the best deals on these upfront costs. With the closing costs, you will need to think both about what you can afford to pay upfront, and what you can afford to pay overall. Do the math to figure out what is going to be the best deal for you now and over the long term.
- Apply for a no closing cost refinance. What if it will be difficult for you to afford to pay for closing costs upfront? If you happen to have an FHA or VA loan, you may be eligible for a streamline no cost refinance. These loans do have closing costs most of the time, but they are rolled into the mortgage amount. That means that while you will pay them over time, you do not have to pay them upfront. In other scenarios, instead of rolling the closing costs into the mortgage amount, the lender instead charges a higher interest rate. Along with reducing upfront costs, these types of refinances have other advantages as well. You may not need to verify your income, and there is no appraisal required. The documentation needed is minimal. This can facilitate a faster, easier process, which in turn may have lower fees, reducing the overall costs. In addition, these streamline refinance products often feature affordable interest rates.
Refinance in Washington or Colorado
Blue Square Mortgage makes it easy to refinance, walking you through the process step by step. To buy a home or refinance in King County, the greater Seattle area, or anywhere in WA or CO, please give us a call at (206) 352-6453 to schedule your consultation.
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