Refinancing? Compare and Find the Best
Finding the Mortgage, Rate, and Lender When Refinancing
Whether purchasing a new home or refinancing your existing mortgage, the time-worn advice to shop around is always a good directive. Not only do you want to research the best rates, fees, programs and lender, but you want the whole experience to be smooth, professional, and in line with your goals. Securing a new mortgage is a major financial decision, after all!
Getting Started with the Refinance Process
Before you begin researching, you’ll want to determine the “why” of your decision to refinance. If you’re taking advantage of record low rates, then you may be hoping to reduce your monthly payment, reduce your loan term, tap your equity for cash, or maybe even all of the above.
A straight refinance with a lower interest rate can save you thousands in the long run, especially if you plan to stay in the home for a long while. If you currently have an adjustable rate mortgage (ARM) and you’re worried about long-term stability, then it may be a good time to refinance to a fixed-rate program. Those in a more secure position may be ready to refinance to a shorter term – 10-, 15- or 20-year fixed – in order to save money and own their home outright, sooner than later. The most popular reason for refinancing is to leverage the growing equity in your home for cash.
Choosing the Right Type of Mortgage
Tied into the reasons for refinancing are the different types of mortgages, which will depend on your personal circumstances as well as objectives. The main categories are:
FHA | Because loans through the Federal Housing Administration are backed by government programs, they can be more accessible to those with a lower credit score, down payment, or loan-to-value ratio (LTV). You’ll need to factor in PMI or private mortgage insurance.
VA | If you’re a veteran or active military personnel, refinancing through the Veteran’s Administration program can offer flexibility, great rates and special guarantees.
Conventional | With a strong credit rating and debt-to-income ratio (DTI), borrowers will benefit from competitive rates and term alternatives, as well as the savings and elimination of the need for PMI.
Cash-Out | Borrowers take the difference between the new loan and the appraised value in cash to do with as they wish: credit consolidation, home improvements, or emergency funds to name a few. In spite of COVID, the real estate industry has remained strong which could mean your home’s fair market value has maintained or increased significantly since purchasing.
Getting the Best Rate
Rates have continued to decline, and the Federal Reserve has offered reassurances that they’ll remain low as the economy continues to find its feet. Industry experts agree it’s a great time to take advantage and reap the savings by refinancing while rates are low. So, how do you find and achieve the best rate?
While there are multiple factors that influence mortgage rates, the borrower does have some control determining the best possible outcome. A lender will consider your credit, income, and LTV.
Before shopping for a lender, check your current credit score. The average is 670, however most lenders will work with all levels. The higher score, the lower rate. Make sure payments are on time and the amount you owe creditors should be less than 30% of total credit available. Check the reporting agency for errors periodically and avoid applying for anything new before your refinance.
Steady employment and the status of your DTI ratio will reflect favorably on your interest rate. Prepare to show two years of tax forms, pay stubs or other documentation of income and assets. Mortgage lenders will also look at the LTV when calculating interest rate, so if your equity has had time to build, expect savings there also.
Finding the Best Lender
As we mentioned at the outset, getting the best program and most competitive interest rate isn’t everything. The right mortgage lender can make the refinance process, not only beneficial financially, but less stressful and more informed. At EnTrust Funding (ETF), we believe in explaining what to expect, and keeping you apprised of every opportunity possible to save money.
We encourage borrowers to ask the right questions and we’ll help navigate the fine print. At EnTrust Funding, we understand all aspects of the mortgage refi process and can help you determine which program would best suit your needs and how to achieve the best rates. When you're ready, contact us for a no-obligation look at your personal needs.