- 1). Do a personal and complete financial appraisal first. Write down on paper your total debt and your total income. Subtract the two to find your disposable income before refinancing anything.
- 2
Think carefully before increasing your risk for loss through a refinance.houses in village image by Alex White from Fotolia.com
Determine why you need the additional income. Identify your purpose for refinancing. Refinance wisely. Do not refinance for briefly enjoyed increased wealth. Ask yourself how you will use the potential money savings derived from the refinancing. - 3). Calculate your equity. Equity is the assessed market value minus what is owed. Make sure it is at least 5 percent; more is better. Determine equity to find out how much you can borrow, and if that amount will do what you decided you wanted to do in Step 2. For instance, if your house is valued at $200,000, and you owe $150,000, you have 25 percent equity. You are eligible to borrow 80 percent (more from some lenders) of the $50,000 difference, which is $40,000. This is considered strong equity.
- 4
Credit scores are kept and reported by at least three different agencies.score card image by Lucy Clark from Fotolia.com
Find out your credit score. Look to see if it is within good to excellent range. Make sure your credit score is at least 680 or better. Remember that the high equity of Step 3, combined with a high credit score, will get you the best interest rate. - 5). Determine whether your loan will be conforming or nonconforming. Keep in mind that conforming loans are easiest to obtain. Make sure you meet the conforming threshold of $417,000 and below of total loan amount.
- 6
Calculate and include your total loan costs to determine the best deal.sign. loan sale image by L. Shat from Fotolia.com
Shop your loan. Call and speak with three or more lenders in your area. Talk with those whom you know first. Take notes as you speak with each. Ask for interest rate, closing costs, loan type explanation and term or length of loan. Confirm their calculated quotes by calculating it for yourself. - 7). Go online to find other lenders if you do not like what the locals tell you. Use the available online calculators to confirm your calculations. Stress the three most important aspects of your loan consideration from Steps 3, 4 and 5 to negotiate the best loan.
