Experts say how to prepare for a mortgage refinance

With mortgage rates falling in recent months and potentially a Federal Reserve rate cut this fall, it would be prudent for high-interest homeowners to start preparing to refinance, experts say.

Last week, mortgage rates rose slightly. According to the Mortgage Bankers Association, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances rose to 6.68%, up from 6.67% for the week ending August 15th to 6.68%.

However, prices have generally been reduced, reaching 10-month lows at the beginning of August.

A lower mortgage rate often results in lower mortgage borrowing costs. Many homeowners have already jumped at opportunities in recent weeks.

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According to MBA data, the refinance share of mortgage activities last week fell from 46.5% the previous week to 46.1% of total applications.

It remains unclear whether the Fed will cut fees in September, whether or not the Fed will respond to its mortgage rates, according to Chen Zhao, director of economics research at Redfin. Federal fund rates affect American borrowing costs, but mortgage rates closely track Treasury yields over a decade. This is sensitive to economic change.

Overall, experts say it’s important for homeowners with high mortgages to start paying attention to interest rate movements and preparing for refinance opportunities.

“Preparing ahead of time allows you to move quickly,” said Keith Gambinger, vice president of home loan website HSH.

Before refinancing, you need to make sure that mortgage interest rates have “decreased well enough” to see true savings, Melissa Cohn, regional vice president of William Raveis Mortgage, recently told CNBC.

There are various rules of thumb used to determine when the rate drops well. According to Redfin’s Zhao, homeowners should consider Refi if the rate is at least 50 basis points lower than the current rate.

Rates can change quickly, so it’s wise to know the target number and start preparing in advance, experts say.

“If you’re looking for a refinance, especially in this type of interest environment, you need to be opportunistic, meaning you probably need to move quickly,” Gumbinger says.

There are five important steps:

First, pull out all credit reports for all three stations (Equifax, Experian, Transunion) and understand how information about them affects your credit score. You can request it for free from major credit agencies via Annualcreditreport.com.

According to HSH, knowing this details will help you get a more accurate rate estimate from your lender. Unlike many other types of loans with mortgages, lenders tend to see scores from all three departments.

If you notice errors that could inadvertently hurt your score, the sooner you fix them, the more experts say. Gumbinger said he will reach out to creditors and the Credit Reporting Office to explain the situation.

However, he said it may take a little time to involve the necessary parties and correct the error.

We want to protect our credit scores as much as possible. Generally, the higher your credit score, the better your qualifying criteria and interest rates.

If you are planning to refinance in the near future, avoid applying for a new credit card or other credit line, making sudden, large purchases that can hurt your score, or avoiding late payments.

After checking your credit history, estimate how many shares you have in your home. According to Bankrate, if you have at least 20% stake in your home, you will get better loan terms from your lender.

If you think you will benefit from Refi soon, HSH recommends collecting the following documents:

The latest copy of your existing mortgage statement of homeowner evidence income and property insurance basis Copy of your property deed is the latest property tax statement indicating legal ownership.

You can also set aside funds to cover up prepaid expenses related to Refi, such as assessment reports and credit reports. According to Bankrate, valuation fees can cost between about $300 and $500, but credit check fees are typically under $30.

Interest rates move fairly quickly, so there are benefits to starting to study different lenders and what they have to offer before actually refinancing, Gumbinger said.

Rather than starting from scratch when your refi is ready, experts say it’s helpful to gather contact information and learn in advance about the various loans, fees and conditions.

“We don’t actually need to contact the lender, but we can do some pre-examinations to make things more willing to speed up,” Gumbinger said.

Once you know you’re “really ready to pull the trigger,” Kohn said, you can shop seriously.

Gumbinger said that there is a record history from existing lenders and could potentially provide a streamlined process. Once you shop, it’s best to choose a lender who offers the best conditions, including the lowest interest rate, experts say.

You can even start to get on their contact list and ask them to reach out to you that you’re good to refinance, Zhao said.

You can refinance and repeat the process whenever you recur and the interest rate drops further.

Make sure there are “large gaps that are worth it,” Gumbinger said.