The Best Way to Refinance a Home Loan

Refinancing a home loan can be a daunting task. There are an inordinate number of lenders and loan programs available to consumers, and picking the right one can be challenging. The most important factor to consider during a refinance is personal finance goals. While there may be one program that is perfect for someone, that same program may be unsuitable for you.

Step 1

Pull a copy of your credit report. You should only consider refinancing if you have excellent credit. The amount of interest you pay on a mortgage is huge, you do not want to exacerbate this figure by obtaining a high-interest loan with a low credit score. See Resources for a free copy. You will need to pay for your FICO score, because only the report is free. Scores above 720 are excellent.

Step 2

Determine the need and goal of a refinance. Perhaps you need some cash on hand. Maybe you need to consolidate bills. Maybe you are just looking for a lower payment and rate. Whatever the reason, you should attempt to craft the refinance into the most long-term solution possible. Habitual refinancing will cost you dearly in mortgage points, fees and closing costs.

Step 3

Begin researching lenders. With excellent credit, you should only look at local banks and credit unions. These institutions offer the most competitive, safest loans on the market. Some brokers offer competitive rates as well, but almost never service your loan. Your mortgage will be sold again and again if you choose a broker.

Step 4

Narrow your search to two to three lenders and fill out applications with all of them. Make sure to bring all documents from the "Things You'll Need" section. This will expedite pre-qualification. This way you can compare offers side-by-side much faster.

Step 5

Choose the loan that best serves your short- and long-term needs. Make sure to work with your loan officer to craft the loan specific to your financial goals. This may mean shortening the term (length), moderately lowering the rate (with discount points) or adding a few bills to consolidate.