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Consider These 7 Essential Steps When Refinancing Your Mortgage
There are many reasons to refinance a home mortgage, whether it’s to lower monthly payments or, if your finances improve, pay off your home loan in less time.
First Steps
First, decide when would be best to finance. If you can trim at least 0.50% to 0.75% off your current interest rate, it might be worth considering.
Closing costs of refinancing can be significant, so consider how long it will take to recoup the expense. If you will be selling in that time frame, a refinance isn't a great idea.
Credit Score
Minimum credit score requirements vary depending on loan type. FHA loans can accept low scores of 500, VA loans will use 620, and USDA loans require 640.
For a conventional loan, you may be okay with a score as low as 620 but might need to be as high as 720, depending on the loan and current equity and debt amounts.
Home Equity
Lenders often want you to have at least 20% equity in your home before refinancing, but variables like good credit and higher interest can affect that.
As an example for your calculations, if your home is worth $200,000, and you still owe $150,000 on your mortgage, you have $50,000, or 25%, in home equity.
Shop around to see who's offering the best rates, lowest fees, and most favorable terms. Your current lender might offer a discount to keep your mortgage in-house.