If you’re considering mortgage refinance, the lowest possible refinance rates is probably what you’re looking for. But before you get started, it’s important to be aware of your objectives and also strengthen your credit position so that you are eligible for the lowest rates. The following should help your cause.
Improve Your Credit Score
A 740 or higher credit score is ideal. But if you can’t get there, at least aim for 620. The refinance rates for borrowers falling in the 620-740 credit score range may vary. The exact numbers, however, may differ across lenders.
Lower the Debt
Paying bills and clearing credit card outstanding balances can decrease your DTI (debt-to-income) ratio, which betters your chances of landing with low mortgage rate deals.
A good thumb rule is to ensure your DTI ratio is not higher than 36 percent. And the lower, the better. If the DTI ratio is too high, even a strong credit score won’t let you sail through.
Increase House Equity
Credit scores and your property’s LTV (loan-to-value) ratio could influence your refinance rate big time. Both a higher LTV and lower credit score could result in an expensive refinance rate.
Organizing Financial Documents
Before applying for a refinance, gather all your credit documents or reports from all pertinent bureaus to ensure there aren’t any errors left to be corrected. A mortgage refinance application usually needs W2s and 2-year tax returns, a couple of latest pay stubs, and two latest investment and bank statements.
Having these essentials handy will ensure the loan processing is smooth and that there aren’t any extra payments for rate lock extensions.
Saving Cash for Closing Expenses
The closing expenses typically amount to two percent of the loaned sum. You can either pay out these closing costs or roll them into your fresh loan, provided you have sufficient equity.
Resort to an online refinance calculator that will provide you with monthly payment estimates at different loan terms. A shorter loan is bound to have a smaller interest rate when compared to longer fixed-rate loans. However, the monthly remittance for the smaller loan will be higher as the loan period is short.
Decide the Loan Terms
The loan duration you decide should be arrived at considering your financial plans and obligations. For instance, if you have several thousand dollars in debt and have almost zero savings, then go with a larger loan period so that your monthly payments will be low.
A shorter loan term could be chosen to build equity quickly. Some side with longer-duration loans to extend the life of their tax deductions.
Contact Different Lenders
Once the loan period has been decided, look for loan products sold by a community or regional bank, credit union, a national bank and a direct lender to know about any special program availability.
Several lenders provide portfolio loans – the details of which are usually not out in the open. Such loans are more flexible and provide special promotions.
Don’t pick a lender only for its mortgage rates. The lender must be credible and trustworthy. The refinance rate is only a starting point – other aspects such as communication must be considered too.