How to Refinance a Subprime Mortgage

Ready to refinance out of your subprime mortgage and into a conventional mortgage? Learn the steps you need to take to search for, compare and choose a lender for your refinance.

Difficulty: Moderately Challenging

Instructions

Things You'll Need:

• Mortgage statement with current balance, interest rate, taxes, insurances, payment amount, principal and interest amount of payment.

1. Contact at least three lenders. Choose local or national banks or mortgage lenders that deal in conventional mortgage loans. Your first lender should be the bank where you have your checking and savings account. Find out what the terms and conditions of the new loan would be, including total closing costs, interest rate and monthly payments. Request an itemized list of estimated closing costs from each lender so you can see exactly what fees they are charging.

2. Compare the three refinance offers. Once you have at least three lender proposals, sit down and compare each offer line by line. It's not only about which lender is offering the lowest interest rate. It's also about the costs involved in obtaining the interest rate. If you're paying $2,000 more to get a lower interest rate, it might not be worth it.

3. Choose the best lender for you. Once you compare the costs, interest rate, term of the mortgage and monthly payments, it's time to decide which mortgage is the best one for you. For example, one lender may be offering you a 15-year mortgage while the other may be offering you a 30-year. The longer-term mortgage may be better for you because it makes your monthly payment lower. You'll pay more interest over the 30-year period, but the monthly expense may be more important to you.

4. Submit the application. Once you choose the lender with whom you want to refinance, it's time to submit the paperwork. Fill out the application completely, and make sure you submit it to the lender with all of the supporting documents requested. This will help speed up the processing time of your application.

5. Attend the closing. When you receive approval on the refinance and proceed through the processing of the loan, you'll receive a closing date to finalize and establish the new mortgage. You'll attend the closing and sign all of the closing documents to put your new mortgage in place.

Tips & Warnings

• Make sure you compare every detail of the mortgages you're considering. It's not only about the lender with the lowest interest rate. Compare the annual percentage rate (APR) rather than the interest rate. The APR is the true cost of the mortgage because it takes all of your upfront and closing costs into consideration and turns it into an annualized cost (rate) for the mortgage. The lender offering the lowest APR is offering the true low-cost mortgage. Inquire as to whether or not an application fee is refundable or applied to your costs before applying for the refinance. Some lenders have nonrefundable application fees, so if you walk away, you lose your money. If you don't understand something, ask your mortgage lender to explain it to you until you understand it.
• Never sign anything without reading it and understanding it fully.