Understanding Home Refinancing
Written by Lee Wyatt (last updated June 15, 2022)
If you are planning on doing some renovations around the home, then chances are you have thought about doing a little home refinancing. However, before you rush off to get a new home loan, a second mortgage, or even a home equity loan, there are a few things that you need to consider. Keep in mind that this can be a huge step, and one that shouldn't be taken lightly. Here are a few things that you should keep in mind when thinking about any home refinancing.
- Purpose. Do you have a specific purpose behind refinancing your home loan? Do you plan on adding a new wing to the house? A new floor? Perhaps you are looking to add a bathroom, or a garage? Maybe you are simply looking to consolidate your bills. Whatever the reason, you should have a concrete and definitive reason in mind before you begin thinking about home refinancing. Having the purpose in mind prior to getting the loan, will help you to use the money more wisely.
- Amount. What is the specific amount of money that you need? While it may be nice to refinance your home loan (which often means getting a new loan) and have all kinds of "extra" money, is it really necessary? Decide what you need before you get the new loan, that way you can help avoid getting into any financial trouble unnecessarily.
- Gather paperwork. Home refinancing will often require a lot of paperwork, many of which you will not have on hand. As you are considering whether you should refinance the loan or not, you can begin consolidating all the paperwork you will need. Get copies of your bank statements, pay stubs, bills, current mortgage records, etc., that way you can begin going over your finances in detail before sitting down with any high pressure mortgage broker.
- Know the lingo. Chances are it has been awhile since you financed your first home loan. If that is the case, then you may need to take a refresher course on the lingo. You should know what you are agreeing to before you sign anything. If you do not feel comfortable understanding what the lingo is, then don't be afraid to ask any questions. After all, it is your home and your bank account that you are talking about here.
- Take your time. If you are thinking about a home refinancing, then be sure that you take your time. Look at all your options, shop around. Find someone that you are comfortable working with, and that you will trust. Think about what you are doing, whether you really need to do it, and whether you trust the person you are talking to. If you ever start to feel rushed, then that is a clue that you need to slow down and take a step back.
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