FHA refinancing can drastically change your financial situation…if done right.
There are a number of reasons to give refinancing a try, including lowering your monthly payments or trying to pay off your loan faster. Because it can change your finances so much, you need to take time to consider if it is the right move for you and to assess your options.
Preparation and Planning
To determine if you are eligible for refinancing, you should start by looking at your credit score. You can find out your score by going to any number of free credit score websites. For a more detailed report of what could be affecting your score, you can get a free credit report from AnnualCreditReport.com.
You should also look at what your loan options are. Equity loans, personal loans and a variety of others all come with their own benefits. It doesn’t stop there, however. You also have choices when it comes to loan rates. You’ll want to study up on fixed rate mortgages and adjustable rate mortgages to determine which one is going to be right for you. The fixed rate tends to start out more expensive, but it stays the same for the entirety of the loan. The adjustable rate starts out lower but becomes more expensive in time.
Keep in mind that refinancing can be costly, so you should be looking at your finances and ensure that you can afford to refinance. Refinancing could save you money in the long run, which is why it’s worth looking into, but it can be costly upfront, and you need to be prepared for that.
Applying for an FHA Refinance Loan
If you decided that you do want to go through with refinancing and you are happy with your financial situation at that point, then it’s time to begin the application process. Not all lenders require the same things from you, but there are some basics that they will all want.
First off, know that they will check your credit score, but you should have already done that yourself, so you should know where it stands. Next, they will look at your finances to see if you can afford the payments. They may also look at your home ownership record and employment record. These can play a part in determining if your loan application is approved. If you haven’t lived in your home for very long or haven’t been at the same job for long, then you will likely be denied the loan.
Before a refinancing loan is set in stone, so to speak, your home will have to be appraised. The lender will send their own appraiser to do the job, and you’ll want to be present during the appraisal to learn about why your home is being assigned the value it is.
After the Refinance
Once you have signed for the loan, then you need to start making payments as they are due. Remember that if you miss any payments, it will reflect negatively on your credit score. Do everything you can to keep to the terms of the refinancing agreement so that it ends up benefiting you instead of harming your credit score.
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