Refinancing Your Home

Refinancing your home, or getting an equity line of credit, means you need a decent credit rating.

Credit ratings are based on your credit score (FICO). Some of the items your credit score is based on are:

1) Your ability to repay a loan (your income and how long you’ve been on a job)

2) The amount of credit you have outstanding on credit cards, and other loans

3) Your credit history (i.e. how long you’ve had credit, and how timely you’ve paid your debts in the past)

4) The number of late payments your credit report is showing

5) Liens and/or judgments you may have against you

6) If you’ve ever filed bankruptcy

To refinance your home, you may need a current appraisal on your home. The appraisal will show what your home’s current market value. The cost of an appraisal can vary between different parts of the country. Normally you can expect to pay around $400 or more, for an appraisal.

Some of your choices for refinancing, can include:

1) Getting a completely new mortgage, which replaces your previous mortgage(s)

2) Keeping your current mortgage, and getting a “second” mortage

3) Keeping your current mortgage, and getting an equity line of credit

When refinancing your home, you may decide to pay off credit cards, student loans, car loans, or other outstanding debts you may have incurred.

These debts are something you need to take a good look at. If you have a car loan that will be paid off shortly, you may be better off, not paying off that loan in your refinance. Keep in mind, when you refinance, you are basically starting with a “clean slate”, and all of your payments will be wrapped into one. If you choose a 30 year mortgage, you are “technically” paying on that car loan, or credit card balances, for 30 years.

If you can financially afford to keep some of your debts out of your refinance, you may be better off in the long run. However, if finances are tight, you may not have any other option than to include all of your debt into the refinance.

Talking to an experience mortgage lender and your financial adviser (if you have one), should be your first step in determining the best way to proceed with a home refinance. Some loan officers can get very creative. It could be to your advantage to “shop around” for the best loan package that fits your needs.

Once your home refinance is complete, and your old debts are paid off, it’s important to look at your financial situation and determine what may have gotten you further in debt than you had planned.

Now may be the time to cut up some of your credit cards, and prepare a budget that you can stick to.

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