Are you having trouble paying your current mortgage every month? Have interest rates fallen since you got your loan? If you answered “yes” to either of these questions, it might be time to consider a refinance.
The Best Refinance Mortgage Lenders:
- Rocket Mortgage®: Best for Simple Applications
- better.com: Best for Instant Rate Comparisons
- Veterans United: Best for VA IRRRLs
- Bank of America: Best for High Debt-to-Income Ratio
- Wells Fargo: Best for In-Person Service
- PNC Financial Services: Best For On-Demand Customer Service
- Luxury Mortgage: Best for Self-employed Professionals
Refinancing can be a quick and easy solution to many mortgage woes. You can refinance your interest rate to take advantage of lower current rates and save money over time. If you’re having trouble paying off your loan, you can lower your monthly payment by refinancing to a longer term. You can even take a portion of your built equity out of your home with a cash-out refinance. But who qualifies for a refinance?
There is no legal limit on the number of times that you can refinance. However, you do need to meet a few lender standards before you’ll qualify.
How Much You Can Refinance
Under most circumstances, your lender won’t allow you to refinance 100% of your home value. The limit for refinancing is usually around 80% to 90% of your total loan value. This means that you’ll need to pay on your loan for a while before you can qualify for a refinance.
For example, let’s say that you bought a home worth $250,000 with a 3% down payment. When you take out your loan, you have a principal balance of $242,500. After a year of making payments on your loan, you may have paid down $2,500 of your principal balance through monthly payments.
You may decide you want to refinance. However, you only have 4% equity in your home at this point — which means that you’ll have a very difficult time finding a lender willing to service your loan. During the beginning of your loan, the vast majority of your monthly payment goes toward interest. This means that you might need to make payments on your loan for a few years before you can qualify for a refinance.
Meet Your Lender’s Standards
You’ll also need to meet your lender’s individual standards to qualify for a refinance. Each lender has its own standards for applicant’s debt, income, credit score and home value.
Your lender will ask you for a bit of personal information to get a better look at your financial situation. Your lender will typically ask you to share your last 2:
- Pay stubs
- W-2 forms
- Bank statements
You may need to provide additional documentation if you’re self-employed.
5 Tips for Finding the Best Refinance Mortgage Lender
So many companies offer refinances! How can you be sure that you’ve chosen the best mortgage company for your needs? Use these 5 tips to get the best refinance mortgage possible.
1. Check Your Credit Score
Your credit score plays a crucial role in the interest rates you’ll see when you shop for a loan. If you haven’t checked on your FICO credit score in a while, be sure to take a look before you apply for a refinance. If you’ve been paying your mortgage loan on time every month, chances are that your score has gone up since you took your loan out.
2. Know Your Loan Stats
Your current loan balance and built equity will also affect the interest estimates you’ll receive when you shop. Contact your current mortgage lender and request information on your current loan balance and interest rate. This will give you an excellent jumping-off point to shop for a new loan.
3. Shop Around for Lenders
Don’t be afraid to take plenty of time to compare refinancing lenders. Each lender charges its own set of fees and sets its own individual interest rates. Compare a few lenders and request custom quotes from each will help you find the most affordable refinance possible.
4. Browse by APR, not Interest Rate
When you shop for refinances, you’ll typically see 2 different percentage rates listed: your interest rate and your annual percentage rate (APR). Your interest rate is the base interest rate you’ll pay on your loan, while your APR is your interest rate plus any annual fees included on your loan. Be sure you’re comparing APRs (not interest rates) when you consider each lender.
5. Know How Much Cash You Need
Taking a cash-out refinance? Know exactly how much money you need before you apply for a new loan. Consolidating credit card debt? Add all of your balances together. Get an estimate from a contractor before you fund a major home improvement. The last thing you want is to be stuck with an incomplete bathroom renovation because you underestimated the price when you took a cash-out refinance.
The 7 Best Refinance Mortgage Companies
Now that you understand how refinancing works, it’s time to start getting quotes. Let’s take a look at some of the best mortgage companies on our radar.
1. Rocket Mortgage®: Best for Simple Applications
You won’t need to worry about navigating a complicated loan application process with a Rocket Mortgage® refinance. Rocket Mortgage® has taken as many steps as it can to simplify the refinancing process. Its intuitive system is so easy to navigate that you can complete your application on your phone. Rocket Mortgage® services many different types of loans, from USDA loans to conventional mortgage and even jumbo loans.
Its website is also packed with information on refinances and offers a host of great resources. Looking for the simplest mortgage process possible? Be sure to consider Rocket Mortgage®.
2. better.com: Best for Instant Rate Comparisons
Refinance interest rates change on a day-to-day (and sometimes hour-to-hour) basis. It can be hard to find the best rate and keep your comparisons straight. Better.com is an online mortgage and refinance lender focused on providing customers with the lowest APRs possible. Just enter your ZIP code, credit score, home value and mortgage balance into Better’s easy-to-use refinance calculator. You’ll see the most up-to-date interest and APR information. You can even compare different loan options side by side to see which term and structure is right for your budget.
Did you find a better APR somewhere else? Better.com has you covered. It offers a Better Price Guarantee that allows you to negotiate your APR and loan terms if you receive a more competitive offer from another lender.
3. Veterans United: Best for VA IRRRLs
If you have a VA loan and you need to refinance to a lower interest rate, you can benefit from a VA Interest Rate Reduction Refinance Loan (IRRRL). A VA IRRRL is a streamlined refinance that allows you to skip over a large amount of paperwork required with a standard refinance. For example, you won’t need to get a new appraisal with a VA IRRRL and you can usually roll your closing costs into your new loan.
Veterans United is a VA-focused mortgage lender that offers both VA IRRRLs and cash-out refinances. Its staff is made up of former members of the armed forces, which means you’ll have additional assistance getting the documentation you need before you refinance. Veterans United’s team also offers 24/7 customer service and additional refinance consulting to ensure that you’re receiving the best possible refinance option.
4. Bank of America: Best for High Debt-to-Income Ratio
Your debt-to-income (DTI) ratio is a percentage that expresses how much of your monthly pre-tax income goes towards your recurring debts. Most refinance lenders require you to have a DTI ratio of less than or equal to 50% when you refinance, which means that less than 50% of your income goes to things like housing, credit card debt and student loans. This can quickly get you into a mortgage catch-22: You need to refinance because your monthly payment is taking up too much of your budget, but you can’t refinance because your debt is too high to qualify.
Bank of America may allow you to refinance with a DTI ratio as high as 55% and a credit score as low as 600 points. Having trouble managing your mortgage loan and you have student loans or other debt? Qualifying for a loan can be easier with Bank of America.
5. Wells Fargo: Best for In-Person Service
If an online mortgage solution isn’t right for you, consider refinancing with Wells Fargo. Wells Fargo is one of the largest mortgage lenders in the United States, with over 8,000 independent branches in operation.
At Wells Fargo, you can apply for a mortgage loan online, over the phone or in-person at one of its branches. You can also begin your mortgage loan online and finish out your application in person with a representative. If the comfort of a human helping hand is on top of your list of refinancing priorities, be sure to consider a refinance with Wells Fargo.
6. PNC Financial Services: Best For On-Demand Customer Service
In a world full of malfunctioning technology and confusing refinancing processes, it can be helpful to know that your new lender has a reliable customer service team on your side. If on-demand customer service is important to you, consider choosing PNC Financial Services for your loan.
PNC is one of the few refinancing companies to offer 24/7 customer support — so no matter when you have an issue, you’ll have a team ready to help.
7. Luxury Mortgage: Best for Self-Employed Professionals
Luxury Mortgage makes it easy for all types of home buyers to get approved for a mortgage. Their flexible requirements can help you get financing, with no employment or income verification and no minimum DTI. Luxury Mortgage offers traditional loan terms, as well as more flexible home payment plans with their 40-year loan program.
It’s also easier to get approved if you’re self-employed. Tax returns are not required and you’ll only need one year of self-employment income history and a minimum credit score of 580. Luxury Mortgage can also help you get approved on assets alone, like your bank statements, stocks and bonds, or retirement accounts.
Luxury Mortgage is licensed to lend in Connecticut, Georgia, Illinois, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, and Washington.
Refinancing Made Simple
Refinance rates can change on a daily basis. This makes it particularly important to collect a few quotes before you apply for a new loan. Create a spreadsheet with lender information and a custom quote from each provider and be sure to update this information regularly. As you look for an affordable refinance, knowledge definitely is power.
Frequently Asked Questions
1) Q: How do I get pre-approved?
First, you need to fill out an application and submit it to the lender of your choice. For the application you need 2 previous years of tax returns including your W-2’s, your pay stub for past month, 2 months worth of bank statements and the lender will run your credit report. Once the application is submitted and processed it takes anywhere from 2-7 days to be approved or denied. Check out our top lenders and lock in your rate today!
2) Q: How much interest will I pay?
Interest that you’ll pay is based on the interest rate that you received at the time of loan origination, how much you borrowed and the term of the loan. If you borrow $208,800 at 3.62% then over the course of a 30-year loan you will pay $133,793.14 in interest, assuming you make the monthly payment of $951.65. For a purchase mortgage rate get a quote here. If you are looking to refinance you can get started quickly here.
3) Q: How much should I save for a down payment?
Most lenders will recommend that you save at least 20% of the cost of the home for a down payment. It is wise to save at least 20% because the more you put down, the lower your monthly payment will be and ultimately you will save on interest costs as well. In the event that you are unable to save 20% there are several home buyer programs and assistance, especially for first time buyers. Check out the lenders that specialize in making the home buying experience a breeze.