In today’s economic climate, who isn’t looking to save more and spend less? It’s easy to get wrapped up in the latest ways to save: couponing, cutting out the daily coffee run, asking your credit cards for an interest rate deduction. While all of these are certainly great ideas that can put positive cash flow back into your bank account, one of the biggest opportunities to save my be right over your head … or under your feet.
We’re talking about your home. For many who purchased their homes over the last decade, refinancing can be a great way to reduce your monthly payment and can save you thousands over the lifetime of your mortgage. It’s also a great way to move from an adjustable-rate to a fixed-rate or to cash out home equity for improvements.
Yet, a recent study by Credit Sesame says that more than two thirds of the households who qualify for a refinance haven’t even tried to get one! If you’ve been sitting on the fence, it’s time to make a move - particularly as rates start to inch up again. Need more convincing? Our friends at Get Rich Slowly offer 5 reasons to refinance your mortgage, while the folks at Money Crashers discuss the good and bad reasons to refinance.
Shopping for Your Refinance
If we’ve helped you decide refinancing might be for you, we now want to caution you. Don’t make the silly mistakes that so many homeowner make when shopping for a refinance.
And, yes! You should shop around. Your mortgage is, after all, one of the biggest financial decisions you must make. It’s important to find a lender that can offer you the best terms for your specific financial needs.
With that said, here’s a few mistakes to avoid:
Mistake #1: Stopping at one lender.
A while ago, the Los Angeles Times reported that more than half of all people stop at one lender when they’re shopping for a mortgage or refinance. Ugh!
Shopping around is one of the most important steps you can take throughout this entire process. Not only do you want to shop for lenders, you want to shop for mortgage products that best suit your specific financial and refinance goals. In fact, the folks at MainSt agree. They listed shopping around as one of their top six expert tips for mortgage refinancing and also remind us that even 0.25% can have a huge impact over the course of your mortgage. It’s worth shopping around for the best deal you can find.
Mistake #2: Not being prepared or having your finances in order.
Another big mistake that borrowers make when they are shopping around for a mortgage refinance is not having their finances in order, or not being prepared. Spend some time researching the process and have a decent understanding of what will be expected of you. You’ll also want to ensure that it even makes sense financially for you to refinance. We’ve got a great mortgage refinance calculator that will help you make this decision.
There are plenty of blogs and financial resources that will help you get your finances in order. For instance, Get Smart offers this handy checklist of things to do in order to help prepare you for applying for a mortgage refinance. What’s more, our blog is filled with a wealth of information on refinancing, improving your credit score, adding value to you home and other things you might want to learn about before starting the process.
Mistake #3: Not being quick and deliberate.
We discussed the importance of shopping around in Mistake #1. But this can also backfire on you if you’re not quick and deliberate. Because each lender will want to pull your credit report, you want to do your shopping during a short window – you don’t want multiple credit pulls over a long period of time to ding your credit. This blog post by Credit Karma does a great job explaining how rate shopping does and doesn’t impact your credit score.
Rather than spacing out your applications with various lenders, try to submit them all within a few days of each other. The credit bureaus will cut you some slack, understanding that you are shopping your mortgage refinance.
Mistake #4: Going in blind.
One of the most important things that you can do when shopping your refinance is to have a good handle on your credit history and credit score, which will give you a better idea of your creditworthiness. If you’re actively monitoring your credit score (the Simple Dollar offers a list of the best credit monitoring services here), you’ll know when it’s the right time to pull the trigger.
Paying off a credit card may bump your score into a range that qualifies you for a lower interest rate on your refi. You might find a discrepancy that is holding you back from the 750+ range. There are a number of positive reasons why monitoring your score is a good idea.
Rather than go into a refinance application blind, know where you stand with your credit. Discuss your financial goals and current situation with the lender and decide if refinancing is right for you.
Mistake #5: Overlooking the costs involved.
Remember when you got your first mortgage? It’s likely that you had to pay closing costs, which included fees like the origination fee, appraisal fees, title and attorney’s fees, and others. More often than not, your refinance will include many of these same fees, and it’s important to factor these into your decision.
Know that you have options when it comes to closing costs. The folks at My Money Blog walk you through ways to avoid high closing costs in their blog. But, we also have a solution! Since we don’t have huge expenses like big lenders, at Lenda we can reduce fees and save you money. In fact, Lenda clients save an average of $8,000 in closing costs. And because of our commitment to full transparency, you’ll never be surprised.
Of course these are just a few of the mistakes that can happen when you’re not staying informed and educated about the refinance process. The best solution? Stay in close contact with your lender and be sure to express your concerns or ask your questions up front. The refinance process doesn’t have to be overwhelming!
We’re a progressive lending company, and we’re leading the way for our clients to save not only time, but also money. Our clients save thousands in closing costs, and love our quick processing time. In addition, they enjoy the lack of paperwork and the ease of technology. Learn more and get your custom quote in seconds today!