If you are in the market to refinance your mortgage there are steps you can take to improve the interest rate you qualify for. The first thing you should do is review the state of your credit and take steps to improve your credit score. Here is what you need to know to get started. When you apply to refinance your home mortgage the lender will evaluate your credit, income, and assets to determine how much of a risk you are for lending. If you have a low credit score it may be difficult to qualify for a new mortgage loan. Poor credit does not mean you cannot qualify for a mortgage; it simply means you will pay more for the financing. This higher cost may be in the form of the number of points you will be required to pay to qualify and a higher interest rate on the new mortgage. How to Clean Up Your Credit There are a number of steps you can take to improve your credit score and the interest rate you will qualify for on the new mortgage. One of the most important aspects of improving your credit is to make all of your current mortgage payments on time. Review your credit reports for errors and pay close attention to your history of on time payments. You will want at least six months in your credit reports of on time payments. The next step you can take to improve your credit is to pay down the balances on your credit cards. You want to maintain a debt-to-income ratio that is less than 20% of your monthly take home pay. To calculate your debt-to-income ratio, divide your monthly income by the sum of your debt and multiply by 100. If this ratio is greater than 20% you need to pay down your debts before applying to refinance your mortgage. When you are in the process of refinancing your mortgage, keep your spending under control. Avoid making large purchases or spending too much using your credit cards. Pay down the balances on your credit cards as much as possible and avoid making any late payments whatsoever. The more you do to improve your credit score before refinancing your mortgage the better your interest rate will be and the more you will save in finance charges. To learn more about qualifying for the best mortgage while avoiding common mortgage mistakes register for a free mortgage guidebook using the links below. |
