The best way to get the funds you need for your big home renovation project is to refinance your home. Homeowners can use the money they get from refinancing their home to fund any kind of home renovation. Here’s how to refinance your home and get your finances in order before meeting a lender.
1. Determine what’s the purpose of refinancing your home.
Know that refinancing your home can give you a couple of benefits. These benefits include:
- Allows you to get a lower interest rate. Refinancing your home allows you to lower the interest rate of your mortgage loan. Lower interest rates means lower payments. This should allow you to pay less for your home overall. By having lower payments for your mortgages, you will be able save up more money every month or use the extra cash for your other expenses.
- Allows you to pay your mortgage debt in a shorter time. Say, your mortgage loan has a 30-year term, refinancing your home for 10-15 years means that you’ll get to own your home and be free from your mortgage debt that much sooner.
- Allows you to consolidate your debts. Refinancing your home allows you to consolidate all of your other debts into one account. Your personal loan, credit card loan, or car loan are merged into one account, making it easier for you to pay them off and manage your finances.
- Allows you to unlock the equity in your home. Another benefit of refinancing your home is that it grants you access to your home’s equity. You can a loan based on the current value of your home and the amount you’ve already paid for your mortgage. This is one of the most cost-effective way for financing your home renovations.
The most important step on how to refinance your home is to run the numbers first. You should have a clear purpose for refinancing your home. Take a good look at all your finances and then decide if refinance is right for you.
2. Check your credit report.
Check your credit history and then get your current score. Remember that, the better your credit score, the better home refinance rates you can get.
3. Get a good estimate of your home’s value.
To refinance your home, you must owe no more than 80% of your home’s value. Knowing the value of your home, will let you know where you stand. Check for for any recent sales on your neighborhood to get an estimate of your home’s value.
4. Look for the best refinance rates.
You should research lenders and find the best refinance rate for your home. You can start by comparing different refinance rates online. Lenders wants to keep your home, so they are likely to match the lowest available rates. Compare as many rates as you can from several lenders until you can find the best deal for you.
5. Know all about refinance fees.
Remember that refinancing your home incurs several fees. These fees can include:
- application fees
- the cost of an appraisal
- origination fees
- document processing fee
- underwriting fee
- credit report charge
- title research and insurance
- recording fees
- tax transfer fees
These fees are usually included in the provided refinance estimate from the lenders that you consider. Don’t jump into those “no-refinance costs” pitch because they are most likely to have higher refinance interest rates.
6. Prepare all the paperwork.
Gathering all the paperwork will require some legwork. It’s even harder these days to gather the paperwork because we usually do our financial transactions online. But you still have to gather and prepare all the documents that your lender requires.
Once you followed the other tips on how to refinance your home and you have all the paperwork in your hand, you are now ready to meet with your lender and discuss the terms of your refinance.