5 tips for prospective home refinancers

By Michele Lerner
Mortgage Credit Problems Columnist

If you are a homeowner following mortgage refinance rates in the hope of scoring a better monthly payment, make sure you know what you need to qualify for a home refinance: equity in your property (in most cases) and the ability to repay your new mortgage.

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If you already have a mortgage for bad credit, you may or may not need to work with bad credit mortgage lenders again for your refinanced home loan. If you have been paying your bills on time and have reduced your debt since you took out your current mortgage, you may be able to qualify for a home refinance with a traditional mortgage lender. Fill out the form on this page to see what mortgage rates lenders may give you today.

Before you apply for a new home loan, consider the following:

  1. Pull your credit report. Start by checking out your own credit score to see if it has improved. Fix any errors and, if possible, pay down your debts to less than 30 percent of the credit limit on each credit card.
  2. Estimate your home value. Ask a Realtor familiar with your market or try one of the online home valuation sites. Having a lot of equity in your home can go a long way to offset any lingering credit problems. If your equity is too low, you may be stuck with your current loan or need to bring cash to settlement to pay down your balance. You may qualify for a Home Affordable Refinance Program (HARP) refinance, which allows eligible homeowners refinance options even if they are underwater. Consult with a lender to find out your options.
  3. Think carefully before consolidating debt. Prepare a realistic spending plan that includes all your financial obligations, then decide if you want to roll additional debt into a home refinance. If you have enough equity, you might be able to pay off debt, but remember you will be increasing your mortgage payment. Another option is to refinance into a lower rate loan and then use your monthly savings to pay other debts faster. This could work well if you are refinancing out of a bad credit mortgage loan with a high interest rate.
  4. Don't take on more debt. While refinancing can be a good way to fix your finances, you must be disciplined enough to avoid going into debt again after paying down your balances.
  5. Do all your math. Make sure you know the entire new payment and how much it will cost to refinance. Remember that if you choose to refinance into a 30-year loan after you have already been in your home eight years, you are stretching out your repayment to 38 years total, adding considerably to the overall interest cost of the home mortgage.

Fill out the form on this page to consult with lenders who can help you make the right decision about refinancing.

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