If you are a homeowner and you have set a goal to get your finances in order this year, have you thought about refinancing your house?
Depending on your situation, refinancing could help you accomplish other financial goals. Maybe you opened a new checking account or a retirement fund to achieve some saving goals – you have taken steps but you may still be wondering if your mortgage could do more for you and your wallet.
With the new qualified mortgage rules in effect, it is important to consider a few factors before contacting a home loan lender.
When was the last time you checked your credit score? To qualify for a refinance, it is important not only to have a strong score, but a history of timely bill paying on your revolving debt for at least twelve months. What shows up on your credit profile? (NOTE: You can check your credit score and read your credit report for free within minutes using MoneyTips' Credit Manager.)
Debt-to-Income Ratio (DTI)
Grab a calculator! DTI is the percentage of your monthly gross income that goes toward paying debts. Lenders use DTI as an indicator of how well you could handle your mortgage payment in addition to the current debt you carry. The lower your DTI ratio, the better your chances are for approval.
If you can improve your rate, a refinance likely makes sense. The term of your loan can also help you achieve your other financial goals sooner. While a 15- or 20-year fixed-rate loan could increase your payment, owning your home free and clear sooner may be a bigger benefit. If you are already several years into your loan, ask your lender about custom terms like 8-year or 22-year loans. You can still get a great rate, have a manageable monthly payment and not feel like you are completely starting over with a 30-year fixed.
If you have a general idea of these important numbers, your lender can help you determine if a refinance, whether with cash out or a shorter term, could help you achieve your personal finance goals.