If you’re thinking about refinancing your home loan, a cash-out refinancing can be a great way to do it. These loans give a consumer the advantage of getting some money from their accumulated equity while also opening up the possibility of getting a lower monthly payment. For many loans, that lower monthly payment is a result of qualifying for a lower interest rate than what a consumer already has on their current mortgage.
If you’re in the market for a new home loan, or if you want to cash out refinance an investment property, follow these tips to make sure you qualify for the best interest rate possible.
- Pay off your debts. Unsecured debts can affect how a borrower looks to a bank in several ways. To start, many credit scores take into account the amount of credit that has been extended to an individual and compare that amount to the level of debt a consumer is actually carrying. In other words, having high balances or maxed out credit cards can make a person look really high risk to a bank. By paying down even a portion of those debts, it is possible to improve this ratio and look like a lower risk. Improving this ratio can also help to improve your credit score, which is one of the most important factors a lender will look at when analyzing a consumer’s risk. Paying off debts will also help to improve the overall total debt load that is carried by a home. This percentage looks at the total amount of debt that is carried by a household and compares it to the total amount of income being brought in by the borrower. As this ratio becomes lower, a borrower looks like a lower risk.
- Make more money. The other way to improve your debt to income ratio is to increase the amount of income that is being brought into the household. Taking on a second job, even if it’s just temporary, can increase income and improve a debt to income ratio. Also be sure to alert your lender if you plan to take on a roommate (rent income can help to defray the cost of a mortgage) or have any other sources of income that were not previously reported. A low ratio will go a long way towards improving your cash out refinance rates.
- Pay your bills on time. Being able to pay bills from loans and utility companies can account for up to 33% of a credit score. Six months of on-time bill paying can result in an overall score increase of twenty points or more. For most people, this is the easiest way to improve their credit score, and qualify for a better cash out refinance rate.
- Improve the appearance of the property. Making a home look attractive to the appraiser when they come out to visit can result in a higher assessed valuator the property. If you’re not looking to pull all of the equity out, having a higher appraised value can mean that you’re leaving a higher portion of the equity in the home. Having a high amount of equity can reduce the risk for a lender making a loan against the home since there is some capital remaining that can be drawn against by the borrower in the event of a future emergency. This can help to lower the cash out refinance rate on an investment property.
- It’s important to be careful when deciding to invest in improving a home. Remember that it is rare for an appraiser to actually enter the home; many just look at the outside and ask detailed questions about the materials used in the home’s construction. Cleaning up the outside of a property is usually a low-cost way to improve an appraisal amount by about two to 5 percent. New paint and furniture, however, won’t affect the overall appraised value of a home, but they can cost a lot of money, time and effort
- Check your credit report. Pull a copy of your credit report and check it for any false information. By some estimates, over a quarter of credit reports have some kind of wrong information on them, and negative information can dramatically lower your credit score.
- Shop around. Simply checking with the same bank where you have your checking account isn’t good enough. Even cash-out refinance investment property rates can vary by several percentage points for the same person between banks. Take the time to check out several different lenders, then ask about your different loan options with each lender. It’s possible to find significant savings by shortening the term of a loan or agreeing to pay online. Websites such as this one can allow you to compare dozens of different loans at the same time without even directly contacting a lender.