If you want to fix your credit problems with a mortgage refinance, take an honest look at your finances. Even if you can get a loan, there are things you should think about carefully or you could put your family's future at risk.
Can you pay the fees every month?
The promise of low interest rates makes potential borrowers want to jump on the mortgage refinance train. Not always are deals with low interest rates the best. When you sign up for years of payback, which is usually about 30 years, there are other things to think about.
Rates can change based on the length of the loan and the interest rate. If you choose a long-term mortgage of 30 years, you will pay $660 per month instead of $1,162 per month for a shorter loan of 15 years. All of these, though, will depend on the lender and the market price at the time.
The first thing to figure out is how much loan you can afford. This is a realistic way to evaluate yourself. If you make at least $22,000 a year, you may be able to get a 30-year loan with a monthly payment of $454 or an interest rate of 4%.
The amount of money you can borrow depends on how much money you make. Aside from looking at your credit score and your current debts and the house you want to refinance, these ratios give lenders a better idea of how you will do.
Do you have a good credit score?
The second question is about how good your credit is. If this is good, you have a good chance of getting a loan, but you should also have enough income.
Should you choose a fixed rate or one that changes?
The third question is: Should you choose fixed rates or rates that change over time? A fixed rate gives the mortgage refinance loan stability over the life of the loan. This is the best choice if you plan to live in the house for more than five years.
If you only plan to live in the new house for five years, you should get an adjustable-rate mortgage (ARM). However, when the ARM resets or changes to higher rates, your mortgage payment could go up.
The low rates on ARMs are an incentive enough. But will your income go up when the rates go up? Yes, that's the catch.
How long will it last?
Yes, a 30 year loan term gives you a lower interest rate. But you would have to pay an extra ten years of interest. But you can also pay more each year to pay off the loan faster.
Since the principal is higher with a shorter term, the monthly payment will be higher, but the interest rate will go down. You save more money and don't have to pay back your mortgage refinance loan for another 15 years.
Are there any more costs?
As a borrower, you should try to avoid paying too much in mortgage origination, appraisal, inspection, credit report, mortgage insurance, and underwriting fees. Know that these can be negotiated because lenders know they have to compete.
Check to see if the attorney's fees are already part of the closing costs of the mortgage agreement when it comes to title charges. If you know these, you can figure out how much more you are going to spend.
Don't let the fact that lenders charge fees scare you. Ask if these fees can be changed in any way. Remember that you took out the mortgage refinance loan and will be paying it back for a number of years.
