When Should You Finance a Mortgage?
Being a homeowner comes with many perks and opportunities. When you finance a mortgage, every payment you make pays down your loan, increasing the amount of equity you have.
This is way better than paying rent each month, never seeing that money again.
So what happens if you ever need to access your equity or the money in your home? You can refinance a mortgage.
There are many reasons why you might want to refinance at some point. Wondering what the most common reasons are? Continue reading to find out.
What Is Refinancing?
Refinancing is one of the incredible tools we have as homeowners. Whenever you need to, you can essentially get a new mortgage to replace your existing mortgage.
You can refinance your mortgage with a new lender, or with your current one if they offer the option to do so. Generally, you can expect to pay closing costs when you refinance, similar to the closing costs you paid when you bought your house.
Refinancing will reset your mortgage payment timeline, which is usually 15 or 30 years, depending on what you choose. You may also get a different interest rate.
All it takes to refinance is getting an appraisal and filling out a lot of paperwork with your lender. It’s quite a bit of work, but can be totally worth it.
When Should You Refinance a Mortgage?
One of the biggest reasons to refinance your mortgage is to take advantage of lower mortgage rates. If you bought your home when interest rates were at 5% but current rates are at 2%, then you might want to refinance. Getting a lower interest rate could save you a huge amount of money. Use a mortgage calculator to evaluate if the lower rate will be worth the closing costs.
You can also refinance when you need to access your equity. If your home has increased in value, or if you’ve lived there long enough to pay down a significant portion of your loan, you may have a lot of equity. You may want to buy additional property, upgrade your home, pay for college tuition, or something totally different. But being able to access your equity is an incredible benefit of homeownership.
Some people just want to change their loan type. If you bought a home using an FHA loan or adjustable-rate mortgage, you may want to get a traditional mortgage instead.
If you originally met the first-time homebuyer loan requirements, then chances are that you’ll meet the refinance requirements. Most lenders make it pretty easy to refinance since it benefits them as well as you.\
In order to refinance, you’ll need the best credit score you can achieve so you can secure the lowest interest rate. You’ll generally need a score of at least 580. If you’re looking to perform a cash-out refinance, you’ll want to have at least 20% equity in the home. You may be able to refinance with less than 20% equity, but it may come with private mortgage insurance, an additional payment you’ll need to make each month. Make sure your debt-to-income ratio is less than 50% and be sure to save enough cash for closing costs.
Finance a Mortgage Today
There are many programs available today to help new home buyers finance a mortgage. Gone are the days where saving up 20% for your down payment was your only option. And when you need to refinance a mortgage, make sure you are coming out with a better mortgage, lower interest rates, a lower monthly payment, or cash out to accomplish responsible goals, such as college tuition.
Want to see if you qualify for a refinance? Contact us today and we’ll help you discover all of your options so you can make the best decision.