Have you been thinking about taking advantage of historically low interest rates and refinancing your mortgage?
Getting a lower rate can potentially save you thousands of dollars in interest and lower your monthly payments. And now may be the time to get off the fence and do it.
Mortgage rates have been trending back up, and forecasters expect this to continue into next year. So this could be your last, best chance to get in on the lowest rates — but it could be a long shot.
Brace yourself for the process. Here are three of the most significant hurdles homeowners face:
1. Paperwork galore. While you’re getting your ducks in a row around taxes, this might be an opportune time to seek out a mortgage loan officer and take it a step further, which will mean completing a lengthy loan application covering every aspect of your finances and employment history — recent income tax returns, pay stubs, proof of checking and savings account balances.
You’ll also need to get a home survey and appraisal, prove you’ve got homeowner’s insurance, and give your signature dozens of times at settlement.
2. Low appraisals & equity. Once you get your appraisal, you may find that your property may not be worth as much as you think. When the bank comes back with a low number it throws off home offers in a sales scenario and the potential to refinance. There’s nothing like a low appraisal to eat into whatever equity you may have or had.
And after the recent decline in home prices, some homeowners have loans that are underwater, or lack the equity necessary to refinance. If you find yourself in this scenario, there are alternative paths you can take, including HARP — the government’s Home Affordability Refinance Program.
3. Cash-flow Issues. Banks want to see strong overall credit, so clean up your credit report first and foremost and make sure you can prove a steady income stream. Even if you’ve never been late on a mortgage payment in 20 years, banks are looking for future predictors of risk. For the roughly 9 million self-employed Americans, this can be tricky. If your income fluctuates, expect the need to show a deep track record, possibly spanning multiple years.
So if you can handle the refinancing process and you have been tempted by those offers of low rates, now may be the time to give it a shot.