Deciding to refinance your mortgage can be a smart financial decision. But if you’re like most Americans who have never refinanced, the process to get from approval to closing is rather unfamiliar. We’ve discussed a number of different ways that you can prepare to refinance your home, but without the experience that comes from refinancing several times, there are still a number of ways that the process can get derailed along the way if you’re not careful.
Today we’re talking about several mortgage refinancing mistakes that can kill your refinance deal, and how to avoid them. You can use these tips below to keep your refinance moving in the right direction from beginning to end.
Refinancing Mistake #1: Failing to understand your creditworthiness.
Before you start calling around to talk to lenders or filling out applications, be sure to do your homework first. One of the most important pieces of information you’ll want to know is your credit score, as it plays a huge role in the overall process and your ability to refinance. In fact, the folks at WiseBread rank the struggle to refinance as #6 on their list of 15 Surprising Ways Your Credit Score Can Hurt You.
How to avoid it: Monitoring your credit is always a great idea – whether you’re planning a refinance or not - and sites like CreditKarma and Credit Sesame are just two of the free credit monitoring sites industry insiders like The Simple Dollar recommend for those who want to keep an eye on their digits. You can expect these and other sites to also offer you mobile apps for convenience, alerts to changes on your report, credit score simulators and more.
The median American FICO score is 723, but with a range from 300 to 850, it’s important to understand some of the ways you can build the perfect credit score. Our recent blog will give you some pointers, so will this recent post by Money Smart Life on how focusing on payment history and paying down credit card debt can help.
Wondering what credit score you need to have to refinance? If your score is 640 or better, you can refinance with Lenda. We’ve also compiled some great advice for refinancing with a score under 700. Keep in mind: the higher the score the better the terms you’ll be able to secure.
This is probably one of the most talked about topics in personal finance, and there is a tremendous amount of great information out there that can help you improve your credit score. Some of our favorite personal finance blogs include: the Get Out of Debt Guy, CoupleMoney, and Good Financial Cents to name a few.
Refinancing Mistake #2: Not disclosing all information on your application.
It could be innocent, but forgetting to mention that you own a rental property outright, for example, can derail your refinance – if not kill it altogether. Your lender needs to take into account all of your debts and income streams in order to calculate your debt to income ratio or DTI. Not disclosing all of your information upfront can certainly cause hiccups down the road that likely could have been avoided.
The folks at Nerd Wallet give a great overview of the Debt to Income ratio, and Mom Finance offers some great pointers on how to juggle its importance in your life. We’ve also discussed some of the important documents and files that you can gather in advance of your application in order to make the entire process go smoothly.
How to avoid it: Be sure to disclose all pertinent information to your lender from the beginning, and review your application thoroughly before submitting. If you’re unsure how to answer a question or what supporting documentation may be needed, ask! Being educated and informed about the process will ensure other snafus don’t come up along the way. The team at Gen X Finance also offers some great pointers for preparing to refinance, and how to decide if you’re ready.
Refinancing Mistake #3: Opening up new lines of credit and/or running up large sums of debt.
As we mentioned before, your lender will pull your credit report to establish your creditworthiness when you apply for your refinance. However, they don’t stop there. Lenders will also recheck before your closing, so you will want to be sure to keep your credit in good standing. In fact, opening up new lines of credit and using credit to make big purchases right after you apply is ranked as #4 by the team at Houselogic on their list of Biggest Refinancing Mistakes.
How to avoid it: Adding new debts or monthly bills can negatively impact your ability to refinance. You should always wait until after the process is complete to make any of these purchases. If it’s an emergency situation – like the refrigerator just died in the middle of June – be sure to discuss this with your lender. There may be alternate solutions to ensure you keep your refinance on track.
On a side note, if you are refinancing in order to save money and balance your budget, sites like Budgets are Sexy, the Penny Hoarder and Money Saving Mom offer a wealth of ideas that can be incorporated into your daily routine to help eliminate your dependency on credit. That way, when big purchases come up in the future, you’re more likely to have the cash on hand to avoid taking on new debt altogether.
Refinancing Mistake #4: Overestimating your home’s current value.
The refinance process hinges your home’s value, as the lender will not refinance any amount greater than the appraisal. Appraisals can also impact your interest rate, since lenders often consider borrowers with less equity to be riskier. The Birmingham Appraisal Blog gives some great insight into the refinance appraisal and the information it will contain for the lender.
As the housing market continues to rebound in markets across the country, it’s important to remember that your home may or may not be worth as much as when you purchased it.
How to avoid it: Keep an open mind about your home’s value. While you can watch the market to see what is selling in your neighborhood, that can only give you a ballpark estimate of what your home may be worth today. The appraisal will be key. You can prep your home for the appraisal by making small repairs and upgrades that can help the value. You can find some great information about high ROI home improvement projects via the folks at Moolanomy.com, or in our recent blog post: “6 High ROI Remodeling Projects to Boost Your Home’s Value this Spring.”
Of course, these are just a few snafus that can hinder the refinancing process. Keep in mind that when you stay in touch with your lender throughout the process, you can mitigate the chances of having a snafu kill your refinance.
Need Help Refinancing Your Mortgage? Aren’t Sure It’s Right for You?
If you are considering refinancing your current mortgage, or if you have any questions about how the process works, we’re happy to help.
At Lenda, our refinancing process is a little different. We offer our clients a simplified and streamlined process: no telemarketers, no paper work, and no hassles (really!). We allow you to complete the entire mortgage refinance process online, without all of the stress and hassle. Our clients enjoy saving thousands of dollars in closing costs, as well as industry leading closing times. Connect with us online to get your quote in seconds today!