I Want to Refi My House - But How?

I want to refi my home to take advantage of the low interest rates we are having right now. But I’ve heard that it’s hard to refinance right now, with the economy. Can I refi my house in this market, and if so what steps should I take?

Over the last few months, I have received literally hundreds of questions like this one through the Home Buying Institute. Some people will give me a long rundown of their financial history, their equity situation, etc., and they will ask me if they might be able to refi their mortgage. So let’s start with the basics and move on from there:

1. Only a mortgage lender can tell you if you qualify for a refi under their guidelines. I can only explain the general criteria lenders have these days. But if you want to know for sure if you can qualify, you have to ask a lender.
2. If you have at least 20% equity and a solid credit score (740 or above), there’s a very good chance you’ll be able to refi your house — and probably save a lot of money in the process.
3. Refinancing does not make sense in every situation. Depending on the interest rate you get on the new loan, and the length of time you stay in the house, a refi may or may not make sense for you.
4. I recommend starting the process with an updated appraisal of your home. A professional appraiser can tell you what your house is worth in the current market, which is the first step to calculating your equity. Subtract the amount you owe on the mortgage from the current value of your home, and you’ll know how much equity you have. If you have negative equity (i.e., you are upside down in the loan), you probably won’t be able to refi the house.

Many people with negative equity ask the question: “I want to refi my house but I am upside down in my mortgage loan. What are my options?” Unfortunately, you don’t have many options in this scenario.

The federal government launched some new programs to help homeowners refinance, and at first it seemed that you could be eligible even if you were slightly underwater. But I’ve seen the language on the website change over recent weeks, so I suspect they are no longer offering hep to upside down homeowners. You can check it out for yourself at http://www.makinghomeaffordable.gov.

How to Refi a House With 20% Equity or More

So let’s say you have at least 20% equity in your house, so you won’t face the negative equity problem. What steps should you take to refi the home? Well, we can assume you have a current appraisal of the house, because that’s how you would measure your equity. If that’s the case, you have completed the first important step already — the home appraisal.

The next thing you need to do is get some refinance quotes from lenders. Remember, it doesn’t always make sense to refi a house in this economy. You have to run the numbers to make sure the money you save (by getting a lower rate) exceeds the money you spend in closing costs. Yes, you will pay closing costs when you refi the house, and they can add up to thousands of dollars — just like they did when you first purchased the home.

So you need to (A) get quotes from lenders, and (B) calculate your savings by using a refi calculator. Only then will you know if it makes sense to refinance the mortgage.

Learn More: This article answers the question: How do I refi my house in this economy? If you want to learn more about this process, check out our library of refinancing articles. You might also like the new refinance blog on our parent website.

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