Refinancing a home mortgage can help you reduce your monthly mortgage payment, pay off the mortgage sooner and lower your total mortgage interest expense.
A refinance can also help you lock in a fixed mortgage rate and achieve other financial benefits.
Requirements for home mortgage refinancing
The process to refinance a home mortgage unfolds in a manner similar to securing a mortgage to purchase a home. You’ll need to:
- Fill out a home mortgage application.
- Submit documentation so the lender can verify the information you provided.
- Sign new loan documents after your home mortgage refinancing is approved.
To qualify for a home mortgage refinancing, you’ll generally need:
- An adequate income to pay off debts and other financial obligations.
- A credit score that demonstrates your ability and willingness to handle debt responsibly.
- Some equity in your home.
Many borrowers face challenges in meeting those requirements, but there are special home mortgage refinancing programs that offer more flexibility. So, it’s a good idea to shop around. Talk to a major lender, mortgage broker and credit union about the loan programs they offer.
If you don’t qualify for a home mortgage refinancing now, at least you’ll be able to find out what you’ll need to do to qualify in the future.
15-year or 30-year home mortgage?
To pay off your mortgage sooner and reduce the interest expense, consider a 15-year mortgage instead of a 30-year mortgage. The interest rate on the 15-year mortgage typically is lower than the rate on the 30-year mortgage. But don’t choose a 15-year mortgage unless you can handle the higher payments.
A rate lock can reserve the interest rate you’ve been offered for a set period of time, such as 30 days.
After filling out the home mortgage refinancing application, take care not to alter your financial situation until the loan is closed. Hold off on major home renovations until after the appraisal has been completed. Don’t apply for new credit card accounts or other types of loans.
Stay in close contact with your loan officer and be ready to submit additional or updated documentation as soon as the lender asks for it.