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How to refinance home loan? Here’s for the confused and undecided.

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You are currently viewing How to refinance home loan? Here’s for the confused and undecided.

Are you thinking of applying for a refinance home loan? The tips below will help you decide as you consider if a refinance home loan is for you or not at this time.

When mortgage rates are lower, it may be true that it is the best time to think about financial restructuring. One of the things you need to consider is how healthy or unhealthy your current financial health would be.

Consider the equity of your home. How much do you have? If you have negative equity, meaning that your current value is lesser than when you first started, it is best not to apply for a refinance home loan. Although consumer confidence has risen to a high level since the pandemic, and many homeowners reported a substantial increase in their equity. But even if your home did not regain its value and you still think you should apply for a refinance home loan, you can talk to your loan officer because there may be a government program that can help you with this.

Credit score and debt-to-income ratio. In the recent past, lenders have been stricter regarding looking at credit scores. Usually, getting a 760 or higher credit score will give you better interest rates. It is not impossible for borrowers with lower credit scores to qualify for a loan, but they will have to prepare to pay for higher interest rates and fees. When it comes to the debt-to-income ratio (DTI), your DTI ratio should be 36% and below to get a favorable result to apply for a refinance home loan successfully. If you can’t reach the 36% level, you might want to start repaying debts now to get the acceptable level.
Consider the rates, cost of refinancing, and terms. It is wise not to look at the interest rate but think about the loan term.  What is your goal? Do you want a lower interest rate for the most extended period possible? Or do you want to save money in the long run by paying more in the shorter term? If the numbers are confusing, you can get help from our mortgage calculator.

If you are still unsure if applying for a refinance home loan is for you or not, contact us.