Spend any amount of time shopping for the lowest refinance rates and you might be frustrated to discover the quotes you’re getting are higher than what lenders are advertising. This is because advertised mortgage rates tend to be based on having a specific credit score and financials. Here are several tips to make sure you’re getting the lowest refinance rates possible for your next home loan.
Shopping for the Lowest Refinance Rates
Getting refinanced with the best mortgage lenders is difficult these days. Government regulation and tighter underwriting standards from banks and lenders make just getting approved difficult for many homeowners. With refinance rates near the lowest levels in sixty years you would think everyone would have refinanced already but many homeowners simply can’t qualify.
If mortgage approval isn’t an issue there’s no shortcut to getting the lowest refinance rates. The underwriting process hasn’t changed since the mortgage meltdown; lenders have just raised the bar on their requirements.
If you want the lowest possible refinance rates without paying discount points you simply need to cover your bases with documenting income, equity and credit.
Your Income, Your Home Equity, Your Credit
To qualify for lowest refinance rates regardless of the type or mortgage or program you need to document sufficient income, equity and credit. It doesn’t matter if you’re refinancing a conforming mortgage, considering an FHA streamline refinance, a VA Interest Rate Reduction Refinance Loan (IRRRL) or have a jumbo mortgage; you won’t get the lowest refinance rates until your financial ducks are in a row.
Your Personal Finance Ducks:
- Debt Income Ratio: Your monthly income versus monthly debt obligation
- Home Equity: Your loan-to-value ratio representing your share of ownership
- Your Credit: Your middle credit score from Equifax, Experian & TransUnion
To get approved for mortgage refinancing you must meet a particular lender’s minimum qualification for all three. When mortgage approval isn’t the issue and you want the lowest refinance rates all three of your ducks need to be in a row to score that lender’s advertised mortgage rates.
Get Your Financial Ducks In Row
Ideally before applying for mortgage refinancing you’ll have a large income, favorable home equity and really good credit. Realistically, not everyone will have all three. If your three ducks are less than stellar that’s okay…there are steps you can take to improve your finances before refinancing.
Ever hear of compensating factors? Compensating factors are other things in your personal finances that make up for some of the blemishes on your application. Think of it as a stronger duck holding up a weaker one. Suppose your income isn’t that great but you have outstanding equity and credit; it’s likely that you’ll be approved for refinance rates close to what lenders are advertising.
This isn’t to say if you have less than stellar credit there aren’t things you can do before applying to improve your score. One of the most effective strategies for quickly improving your credit score is to pay down the balances on your credit cards. It goes without saying but you should also avoid making late payments at all costs.
What About Home Equtiy? What if You’re Underwater?
If you’re underwater in your current mortgage your chances of getting refinance rates close to what lenders are advertising are slim to none. What you should be focusing on if you’re HARP 2.0 eligible is shopping for the lowest program refinance rates and fees. You still need your ducks in a row and compensating factors can improve your interest rate.
If you’re not HARP 2.0 eligible because Fannie Mae or Freddie Mac don’t back your mortgage there isn’t much you can do at the moment. HARP 3.0 is rumored to remove the Fannie/Freddie requirement bringing underwater mortgage refinancing to just about everyone.
Where You Should Be Focused When Refinancing
Getting the lowest refinance rates is important but there’s more to consider if you want the best deal for your next home loan. In fact, the fees you pay when closing on your new mortgage make or break the deal you’re getting, not just the interest rate. Pay too much closing on your new home loan and it’s going to be difficult, even impossible to recoup your out-of-pocket expenses. Considering that the average homeowner refinances every four or five years recouping your closing costs is the most important factor to consider.
Some of the most commonly overpaid mortgage fees include the loan origination fee or paying discount points. Not only are these the most commonly overpaid refinancing fees but they are the easiest to negotiate. Getting a better deal on your next home loan than your neighbors got is easier than you think.
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You can learn more about getting the best deal on your next home loan without overpaying lender fees at closing by checking out my free Underground Mortgage Videos.
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