Common Mistakes to Look Out for When Refinancing

Now’s a good time for homeowners to refinance their mortgages. Mortgage rates have remained in their historic lows and home values have continued to soar in most areas of the country.

It sounds too good to be true, however, we don’t want you to get too excited. While refinancing has many great advantages, it isn’t for everyone.

Each of us is in different financial and personal situations. Our unique circumstances dictate whether we need to refinance now or not. Understanding how mortgage refinancing works is fundamental in determining if is the right time to refinance.

Instead of benefiting from a refinance, some people end up spiraling down with more debts to pay. Many of them didn’t realize that it is not always about the rates.

Yes, rates can entice you to refinance. The lower the rate, the lower the monthly mortgage payments. However, other factors also come into play when refinancing your loan. You have to look at the bigger picture to know if you can truly benefit from a refinance.

Here are the most common mistakes homeowners commit when refinancing their loan. It is best to avoid them at all costs.

Not Shopping for Lenders

Plenty of homeowners believe that they can only refinance their mortgage with their current lender. This is simply a misconception.

When you refinance, you have the option to process it with your lender or with a new one if you wish.

Let’s just say you already trust your lender so much that you want to stay with them when you refinance. There is nothing wrong with that. However, if you don’t try shopping around, you won’t be able to see if there are better offers other there.

Getting a quote from a new lender does not tie you down with them. Moreover, looking around doesn’t severe the ties you have with your current lender.

When you shop for lenders, it opens opportunities to find a better loan with a more affordable rate and more favorable terms.

Believing that Refinancing will ALWAYS Save You Money

Again, refinancing isn’t just about ‘low’ interest rates. Yes, a reduced interest rate presents a great opportunity to save cash. However, you have to consider that there are costs associated with refinancing your mortgage.

You have to calculate the cost of the refinance. This includes application and origination fees, inspection and appraisal fees, documentation charges and other third-party costs among others.

By including these expenses into the whole picture, only then can you determine if you will break even or you can actually save more if you refinance.

Not Dealing with Your Bad Credit First

Your credit score plays a huge part when you apply for a loan. Same goes when you refinance your mortgage.

If you carry bad credit, be careful when you refinance. You may end up with a more expensive loan than the one you currently have. When you have bad credit, your lender may ask you for a bigger down payment to compensate for the risk. It is also possible that they will offer you a rate that’s higher than what you expected.

Before refinancing, try to fix your credit score first. In general, conventional loans require a 660 credit score for you to be get a lower rate. If you want to save more, work on getting a higher score.

These are the most common mistakes committed by nonchalant homeowners. To save yourself from problems when applying for a mortgage, learn from these mistakes. Mistakes can be a great way to learn a lot of lessons. However, if it involves a house or your finances or your future, it is better to be safe than sorry.

Look for lenders who are willing to work with you in making your mortgage more affordable. If you want to begin shopping, you can start online. Nonqualifiedmortgage.com can help you connect with a variety of lenders, from conventional to non-QM. Explore your refinancing options today and find the best deals.