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Savings Become Challenging

You will not be able to save money if you refinance your mortgage. If your financial conditions have not changed after you have taken the first loan, then you may don’t have any greater change in monthly payments or interest rate. It is important to note that there are fees of refinancing that you need to pay at the time of applying for it. Thus, you need to determine how much money you have to save to pay for the fees instead of weighing how much money you are willing to spend monthly.

High Costs

The most unpleasing disadvantage of refinancing your mortgage is the amount you need to pay to avail of the new loan. Generally, it ranges between $3,000 and $6,000 or more. This also depends on the amount of the new loan, your lower interest rate, and your discount points. Not to mention, this expenditure shows what you have paid on the first mortgage. In a nutshell, you will be paying again to purchase the same thing.

Delayed Mortgage Payoff

In typical refinance conditions, you get more time on your loan. For example, in your 30-year loan, you have paid for five years. When you refinance your mortgage, you will add five years back on your loan term. This means you will own your home for five more years unless you have to make additional principal payments. But if you stay with your current mortgage and pay your requisite payments, you can become loan-free in 25 years.

Refinancing Your Mortgage Takes Time

If you think that your application for refinancing will get approved the same day you apply, then you are wrong. Refinancing your mortgage is not a task that you can do in a single day. You will need time, resources, and money to secure a lower rate before applying for the loan. Some lenders also refuse to give more loans on your mortgage. There can be several reasons for it. For instance, a person who always makes delayed monthly minimum payments can get refusal on their refinancing application.

Bottom Line

Refinancing your mortgage simply means making your financial situation more unstable than before. You need to pay more premium payments for your new loan. Apart from this, you need to use all your savings to pay the fees of the mortgage loan. This is why it’s better to avoid refinancing and try to pay your current mortgage loan.

As we continue to come back from the significant recession that the housing bubble caused, more and more people are thinking about buying a home. With many being first-time homebuyers, we’ve compiled a list of the essentials you’ll need to know to get mortgage approval.

1. Look At Your Debt-To-Income Data

The very first step to mortgage application preparation is to determine your monthly income as well as your debt payments. Your potential lender will want to see evidence of employment, generally going back two years, but often a few recent pay stubs can get you started with many lenders.

If you are one of the millions of Americans who are self-employed or have variable income such as performers, be prepared to have that process be much more involved. Getting the best mortgage overall, as well as the best payments and interest rates, is going to be dependant on your debt to income ratio.

2. Clean Up Your Credit Health

This is often one of the largest challenges for many people. Your credit history report and your credit score will be instrumental in your lender’s eventual decision. You should aim to have a FICO score of 680-700 as a floor. However, if your credit score is only missing 680 by a small margin, you may want to look into an FHA loan, which has a little bit easier approval requirements in some cases.

3. Calculate Your Mortgage Budget

Before you make an appointment with any potential lenders or mortgage officers, you will want to know for sure, how much house you can afford, and what you can commit to in terms of a monthly payment. This payment will include your taxes, fees, and insurance, and should not be more than 33%-35% of your pre-tax income. This can be a difficult stage, since many mortgages have variable interest rates, meaning your payment could fluctuate at some point in the future.

4. Plan To Save For Your Home Down Payment

This is a very significant step and can make or break your house hunt. Many lenders will require you to be able to put at least 10% down unless you are participating in an FHA loan or other special lending program. If you can put at least 20% down, you can avoid having to obtain PMI, or private mortgage insurance, to protect your lender against a possible foreclosure of the property before it has enough equity built up.

5. Figure Out The Best Time To Apply

You can often get a pre-qualification without a hard credit pull. It will however stay on your credit report for some time. A pre-qualification can give you a good indicator of whether you can obtain a mortgage at a glance, and is often a very strong indicator of being a serious buyer. You can often get a pre-qualification letter that will be good for 60-90 days depending on the lender, it’s non-binding, and will put you in a great position to start looking around.