3 Things To Consider About Refinancing Your Home

Posted on: 26 March 2019

Refinancing your home is something that you may find yourself considering in the future. It's a great way to take advantage of the equity in your home. There are a variety of reasons why you may want to refinance. Refinancing your home can allow you to lower your mortgage payments or even change the terms of your mortgage in order to allow you to pay it off sooner. While there are many potential benefits to refinancing, it's still a major financial decision. Here are three things that you should consider before seeking out home refinancing services in your area.

Your Credit Score Matters

The first thing that you should know when it comes to home refinancing is that your overall financial health will play a major role in whether or not a lender will approve your new loan. One of the best measures of your financial health is your credit score. Before even starting the process you will want to take a look at your credit score. Conventional lenders typically require a credit score of at least 620 for refinancing, however, for the best rates you will want a score of 740 or higher. A minimum credit score of 620 is also typically needed if you are seeking an FHA refinance or a VA cash out in your area.

Equity Is Key

While home refinancing can be very attractive, you have to build at least some equity before it is an option. If you are in an area with rising real estate values or you have been paying on your mortgage for a few years, chances are you already have built up a significant amount of equity in your home. Having 20 percent equity in your home is typically recommended for a mortgage refinance, however, you may be able to refinance with as little as 5 percent equity.

The Cost of Refinancing

While refinancing your mortgage can save you a significant amount of money through a lower interest rate, it's important to consider the cost of refinancing before jumping in. There are fees and other costs associated with this process. If you have less than 20 percent equity, you will also have to pay private mortgage insurance. Refinancing typically costs between 3 and 5 percent of the value of the loan. 

If you are considering refinancing your home, there are a few things to keep in mind. First, your credit score matters. You will need at least a 620 credit score to qualify for refinancing. Equity is also key. Before refinancing you will need at least some equity built up in your home. You will also want to consider the cost of refinancing before applying for a new loan.