mortgage

5 steps to a successful refinance

In addition, many experts urge homeowners to take advantage of today's historically low mortgage rates by sticking to a 30-year or 15-year fixed-rate mortgage when they refinance. However, mortgages that recently have fallen out of favor -- such as adjustable-rate and interest-only mortgages -- also may make sense for some borrowers.

If you have questions about whether a refinance is right for you -- and if so, which type of loan you should choose -- consider talking to a fee-only Certified Financial Planner.

Step 2: Gather important documents 

If you took out a mortgage a few years ago during the housing boom, you may be surprised at the increased scrutiny lenders now apply to potential borrowers.

You'll need to prove -- through bank statements and pay stubs -- exactly how much money you have coming in and how much you have in reserves.

If in doubt, don't throw it out. Instead, save recent pay stubs, as well as the last few income tax statements and W2 forms from your employer.

Bank and brokerage statements for at least the past couple of months often are required.

"For people who do all their banking online, I suggest printing out your statements," says Brian Short, executive director of the Tennessee Association of Mortgage Brokers.

Know your credit score before you refinance. Only homeowners with stellar credit will qualify for the best rates.

"As soon as you think you're going to refinance, get copies of your credit reports and make sure there aren't any errors that will drag your score down," says Rick Palandri, president of 1st Mortgage of Illinois in Bloomingdale, Ill.

Errors can be corrected, but it takes time to inform the credit bureaus of mistakes. So the sooner you check your credit, the better. You can get a free copy of your credit report at AnnualCreditReports.com. If you also want your credit score, you'll need to pay a fee.

Lenders approve borrowers based on credit scores derived from information found in credit reports.

When a customer indicates serious interest in a mortgage, many lenders will offer a free initial information session. As part of this service, the lender will pull your credit score for free, says Jerry Surface, owner of Pinehurst Mortgage in Pinehurst, N.C.

advertisement
replacecontent-tcm:8-113947

Be careful not to spread your loan inquiries over a long stretch. Multiple credit inquiries from auto or mortgage lenders are usually ignored by companies that produce scores for a 30-day period, explains Craig Watts, public affairs manager for Fair Isaac Corp., the company that pioneered credit scoring. After that, additional inquiries can bring your score down. Some older scoring models allow only a two-week span before inquiries can damage your credit score.

Once a representative has your credit score and other important information -- such as documentation of your current monthly debt load and income – he or she will discuss your particulars with you and explain whether you qualify for a certain loan.

Show Bankrate's community sharing policy
          Connect with us
advertisement
MORTGAGE & REAL ESTATE NEWSLETTER

Timely market news and advice for consumers ready to buy, sell or invest in real estate. Delivered weekly.

Blog

Holden Lewis

Why not have loan inspectors?

I have an idea: Let's set up a network of mortgage inspectors.  ... Read more

advertisement
Partner Center
advertisement

Connect with us