4 Money-Saving Refinancing Tips
Know your credit score.
Finding out where you stand with your credit score is the best place to start the refi process. Why? Because your credit score determines how attractive a borrower your mortgage lender thinks you are; the better your score, the lower and more competitive loan rates you’ll be offered.
Through the pandemic, everyone in the U.S. can get a free credit report each week from all three national credit reporting agencies (Equifax, Experian, and TransUnion) at AnnualCreditReport.com. Generally, you’ll need a credit score of at least 620 or higher to qualify to refinance, and 740 or higher to nab the attractive rates you see advertised. The better your score, the better rates you’ll be offered.
If necessary, take some time to boost your credit score by checking your report for and refuting any errors and taking care of delinquencies on your credit report, as well as paying down credit card debt and establishing on-time bill paying.
Be ready for your appraisal.
As part of the loan closing process, you may need an appraisal, where your home’s current valuation is assessed by a third-party professional who measures dimensions, amenities, and overall condition. An appraisal protects the bank by ensuring they don’t lend a borrower more money than the property is worth.
It’s in your best interest to make sure your home appraises well—the higher the home value, the higher your equity, which qualifies you for the most attractive interest rates. To prepare, make sure your home is clean and clutter-free. Freshen up with paint where needed, make any necessary repairs, mow the lawn and make sure to point out upgrades and improvements to make the best impression and have the most accurate assessment possible.
Pay closing costs and points upfront.
A “no closing cost” loan sounds great, but those costs are usually buried in a higher interest rate which can end up costing you more than closing costs over the life of the loan. Paying “points” upfront allows your lender to buy down your interest rate and allows more of your payment to go to your principal. If you’re able, opt to pay closing costs and points upfront for a lower interest rate that will result in savings over the long-term life of the loan.
Shop around.
Comparison shopping is one of the easiest ways to pocket extra money during your refi process. A 2018 study by Freddie Mac investigated how much money borrowers potentially leave on the table when they don’t shop around. For a typical $250,000 mortgage, a borrower who got one extra rate quote saved an average of $1,435 over the life of the loan, according to Freddie Mac.
A mortgage refinance can be a significant cost-saving move, but it can also come with a high price tag. Shopping around and being prepared to give you the best chance of landing the best deal and saving you serious cash.