Shopping for your refi -- 5 steps to savings

Posted by  on Aug 12, 2013

While you may think it's simpler to refinance your mortgage with your current lender, taking the time to shop around with the best mortgage lenders can result in finding the right loan to meet your needs at the best mortgage rates. Start by defining your goals for your refinance and then set up a game plan to generate multiple refinance options. A mortgage calculator can help you estimate your payments for various loan terms so you can determine whether you're comfortable committing to a 20-, 15-, or 10-year loan. Decide for yourself a maximum mortgage payment before you consult a lender because, while you might qualify for a higher payment, only you know the reality of your budget. Not only do you need to be able to afford the mortgage payment, but you also need to meet your other obligations such as saving for retirement or college tuition and paying down high-interest debt.

Mortgage refinance shopping steps

After you've defined your refinancing goals and estimated your desired monthly payment, you need to take several steps before you complete your refinance application.

  • Check your credit. Since the last time you applied for a mortgage loan, your credit may have changed and lender's standards may have changed. To successfully refinance, you'll need a credit score above 640 for most lenders; but for the lowest mortgage rates, you'll need a credit score of 740 or above. If you check your credit report first, you can spot mistakes. If you have credit problems, a good mortgage lender can tell you the best steps to take to boost your score.
  • Talk to several types of lenders. To get a true picture of your refinancing options, consult a community bank, an online-only lender, a credit union, a direct lender and a national bank to see if any of them are offering special programs that fit your financial needs. Get referrals for these lenders from friends and acquaintances and read reviews so that you find someone you can trust.
  • Ask about loan options. A good lender can talk to you about the pros and cons of government loan programs and conventional financing. Some lenders have portfolio loans they service and hold in-house which have different terms than loans that are sold on the secondary market.
  • Ask about closing cost choices. You can decide if you want to wrap your closing costs into your loan balance, pay a slightly higher interest rate, or pay cash -- and you can shop for those too.
  • Compare interest rates and fees. Once you've settled on the loan program you want and your method of paying for your refinance, you can compare mortgage rates and fees from one lender to another. Make sure you compare rates on the same day since they fluctuate frequently.

Thoroughly researching your lender and your mortgage options takes time, but the benefit of saving thousands over the life of your loan should be worth a few extra hours of shopping.

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