What you need to know before refinancing

Are you considering a mortgage refinance? Ask yourself these five questions first.

By Diana Bocco | Yahoo! Homes – Tue, Dec 11, 2012 1:54 PM EST

Here’s the thing: Refinancing a mortgage could save you a lot of money. But, it’s no walk in the park, and it definitely is not for everybody.

In fact, there are multiple factors to consider before determining if refinancing is right for you.

“People should always look at the big picture when they are refinancing,” says Keaton Hutto, branch manager for Hometown Lenders in Lubbock, TX. Hutto says more often than not people are concerned with how much refinancing is going to save them monthly, and that’s a mistake.

Instead, says Hutto, people considering a refinance should ask themselves two questions: “How much is this going to save me yearly?” and “How much is this going to save me over the life of my loan?”

Here are five more questions to ask yourself before you decide to refinance…

Question #1: Is My Credit Score Good Enough for Refinancing?

Remember your credit score? It’s that thing you worried about when you bought your first car and home. News flash: It’s just as important when you refinance your mortgage.
And the better your score, the better your chance at scoring a low interest rate.

“Any borrower with a credit score of 740 and above can potentially qualify for the best rates,” says Dean Vlamis, a mortgage expert at Perl Mortgage, an independent Chicago-based correspondent lender. “There is a price hit to the interest rate at every level, so the lower the credit score, the higher the interest rate.”

What if you don’t have a soaring credit score? It’s not the end of your refinancing road. Your debt-to-income ratio, which looks at your housing payment and other monthly debts, versus your gross monthly income, could be your way out.

“If the ratios fall in line; preferably under 45 percent, then the borrower can get a preliminary approval,” says Vlamis.

Question #2: How Much Equity Do I Have?

Before you shell out thousands of dollars to refinance, you should first consider how much equity you have in your home. Equity is calculated by subtracting the total balance of your mortgages from the appraised value of your home.

And the more equity you have, the better your chance of saving money when you refinance. In fact, with higher equity, you’ll likely qualify for lower interest rates and fewer additional fees.

“Ideal amount of equity is of course 100 percent [your home is paid off], but what you really want to look at when taking out a loan is hopefully having at least a 20 percent equity position,” explains Barry Habib, vice president and chief market strategist of Residential Finance Corporation.

If your equity is poor, don’t despair. Habib points out that federal programs such as the Home Affordable Refinance Program (HARP), allows you to refinance with zero equity (or if you owe more than the house is appraised for).

check out the rest of this article here.

Orson Klender, Licensed Associate Broker; Keller Williams Real Estate

www.realestatesalesaratogaspringsny.com

oklender@kw.com

518-588-2319

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