Refinancing your existing mortgage loan to one with a lower interest rate can shave hundreds of dollars off your monthly payment. The key, of course, is to lower your rate by enough to realize these big savings.
If you’re ready to lower the rate on your loan, here are three key tips to make the process run as smoothly as possible.
1. Check Your Credit A refinance won’t make financial sense if you don’t lower your interest rate by enough. That’s the source of your savings, dropping your rate from a higher figure to a lower one. Lenders, though, won’t approve you for a lower rate if your credit isn’t strong. Before applying for a refinance, order free copies of your three credit reports from www.AnnualCreditReport.com and review them. If you see plenty of late or missed payments on these reports? Lenders might not be ready to drop your interest rate.
2. Check Your Credit Score Your three-digit FICO credit score is compiled from the information in your credit reports. It gives lenders a snapshot of how well you’ve paid your bills and managed your credit. If you want to refinance, you need a high credit score. If your score is low, lenders won’t approve you for a new loan with a lower interest rate. Most lenders consider FICO scores of 740 or higher to be excellent ones. But you might see a big enough drop in your interest rate if your FICO score is 700 or higher.
3. Gather Your Papers You’ll need to prove your income when applying for a refinance. To do this, you’ll provide lenders copies of your last two months of bank account statements, last two years of federal tax returns, two most recent paycheck stubs and most recent W-2 statements. To make the process move faster, gather up this paperwork at the beginning stages of the refinance.
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