How to Prepare to Refinance a Mortgage

Ready to refinance your mortgage? Using these simple steps before applying to refinance a mortgage could save lots of time and money.

Difficulty: Moderate

Instructions

Things You'll Need:

• time
• internet access
• a phone
• a notebook

1. The first step to refinance a mortgage is to check your credit report and score. You can request your credit report for free once per year from the three credit reporting agencies: Equifax, TransUnion, and Experian. See resources, below, for an easy link to annualcreditreport.com. To see your credit score, which is the number lenders use to determine how credit-worthy you are, you'll have to pay about $15. Be sure to only request your credit report from a reputable source. Most free credit scores are junk. You'll have to pony up for this one.

2. You'll need to have a good idea of what your home is worth before you refinance your mortgage. Consider what your tax record claims your property is worth. This number is not what a lender would consider your property to be worth, but this is a good place to start. Compare recent sales of homes in your neighborhood if the homes are similar to yours. You can look in your local paper for recent land transfers to determine the average price of homes in the area. Also take into consideration the housing market in your area. If the housing market in your area is depressed, chances are your property has lost value instead of having gained value. If you are really unsure, you can hire an appraiser to assess your property. A home appraisal typically costs between $200 and $500.

3. Now that you know your credit score and have a good idea of what your property is worth, this is the time to shop for a lender. Check websites such as bankrate.com to compare lenders in your area. Consider calling local lenders to discuss your potential loan, especially if you have a non-traditional loan right now or if your current loan is for less than $200,000 or more than $417,000. Also, the interest rate you see posted online is typically only for borrowers with perfect credit. If you have less-than-stellar credit, it's best to contact lenders directly to discuss your potential loan.

Tips & Warnings

• Be sure to take good notes as you are checking your credit score, figuring out the value of your property, and researching different lenders. You will probably want to look back over your notes later as you refinance the mortgage.
• Be prepared in case you find you are not a good candidate for a mortgage refinance. It's better to find out at this point, when you've spent just a little money, than to find out later after paying a lender around $500 for them to check your credit report and hire an appraiser.

Resources

• annualcreditreport.com
• How to Prepare for a Home Appraisal
• How to Check Local Mortgage Rates

[eveewonder]

on 9/1/2009 Thanks. I am looking to refinance my mortgage for a lower rate.

[karileighk]

on 7/16/2009 Thanks. Good info to know for the future.