Ask 100 people and you will most likely get 95 different answers. A mortgage, specifically a refinance, is not a “one size fits all” solution. Here are 7 steps that will help you:
Step 1: Decide what you want to get out of the refinance? Sound easy? If you have a financial plan it may very well be. However, you should have a clear definition. It cannot be broad. It is not just a lower rate. It is not just a lower payment. It is not a new term. What are you achieving? This is the key to your refinance success.
Step 2: Assess where you are financially. Often we assess our financial state from the 1st through the 15th and the 16th through the 30th. In short, when we get paid. Where we are financially is what we have leftover when the bills have been paid. Your assessment of your financial situation needs to include:
- What is my credit score?
- What is my debt to income ratio? Total income versus total outstanding debt payments.
- What is my LTV loan to value? How much has my home appreciated or gone up in value? How can I use that to my advantage in achieving my goals?
Step 3: Shop the best terms. Now you will hear the “talking heads” on TV say “find the best rate.” Shop the best rate. The rate can be an illusion. You are looking at the entire package. How will that help you achieve your stated goals?
Step 4: Apply to one single source for your refinance. Applying to multiple lenders and those hard credit pulls can drive your credit score. Have conversations with a few, choose one. Choose the one that is in alignment with your financial plan.
Step 5: Prepare all of the documentation. All the tax returns, pay stubs, assets, credit explanation letters, savings, etc. This will help the lender and ultimately help you in moving the process along.
Step 6: Next up the appraisal. This is an exciting time. Most homeowners have under-valued the worth of their home. You may be surprised by the market. Do not allow yourself to think any improvements made will have a huge increase in value. Unless you did total kitchen or bathroom remodels, you may be surprised at what drives up the value of your home.
Step 7: Close. Close and stick to the plan, no matter what. If you did a debt consolidation, ensure you stop using those cards and resist the temptation of acquiring new debt. It is a financial plan for a reason.
Don’t overcomplicate the process. Do not be overwhelmed. Those initial conversations without credit being pulled will tell you a great deal about the function and flow of a company or individual. It is how you connect together to ensure you achieve those goals that matter.