If you’re shopping for the a new home loan and are wondering why you’re not getting quoted the best refinance rates that your neighbors are bragging about, you might want to turn your attention to your credit score. While it’s true that today’s best refinance rates have solidly dipped below five percent your rate could be much higher if you have less than stellar credit. Here are several of my best tips before you refi to help you get the lowest refinance rates.
Mortgage Refinance Rates Vary by Homeowner
Getting the best refinance rates in today’s market mainly comes down to your credit score. Mortgage lenders charge homeowners with lower credit scores higher interest rates, which will end up costing them thousands of dollars more than their neighbors with better credit scores.
Here’s an illustration from Washington Post showing how your credit score impacts your monthly payment and the total cost of your home. This example uses a home loan amount of $200,000 at various credit scores ranging from 620 to 850.
As you can see having a credit score of 620 will cost you $52,171 more than your neighbor is paying for the same home loan with a credit score of 850. Don’t worry, if your credit score isn’t where you’d like it there are steps you can take to make sure you’re getting today’s best refinance rates.
Where to start improving your credit score? Visit AnnualCreditReport.com and download all three copies of your credit reports. Congress passed a law several years ago requiring the credit bureaus to give you a free copy of your credit report once per year and this is the website to get your free credit reports. The site will try to sell you a credit score; however, you don’t need to buy your credit score because your broker will give it to you when you apply for a mortgage refinance loan.
Once you’ve printed out your credit reports you’ll want to carefully review all three for errors. If you find mistakes in your credit reports each of three credit bureaus has a procedure for disputing errors. Cleaning up errors in your credit reports is going to get you the most bang for your buck when it comes to improving your credit score; however, if you don’t find mistakes there are other things you can do.
How to Get Today’s Best Refinance Rates
Maxing out your credit cards also has a negative impact on your mortgage refi. Paying down your balances as much as possible before your mortgage refinance application will help boost your credit score ensuring that number isn’t holding you back from today’s best refinance rates.
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You can learn more about getting the lowest refinance rates possible without paying lender junk fees by checking out my free Underground Mortgage Refinancing Videos.
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My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
