Self-employed homeowners who were able to take out a mortgage to buy a home may possibly refinance their mortgage. Mortgage refinancing could be beneficial in several ways including getting a much lower interest rate, mortgage insurance elimination, cashing-out on home equity, or changing an adjustable-rate mortgage into a fixed-rate mortgage. Refinancing a mortgage as a self-employed homeowner could be a challenge if you’re unfamiliar with the process.
Important: You could get financial assistance under the expanded unemployment benefits for COVID-19 if you suffer from income loss or income reduction as a self-employed individual, freelancer or gig-worker because of the COVID-19 pandemic.
5 Refinancing tips you may consider as a self-employed homeowner
If you were able to take out a loan to buy your home as a self-employed individual, you probably have an idea already of the refinancing process, the key difference is that no property keys will be turned over to you at the closing table. Keep in mind that lenders implement stricter standards for self-employed individuals who want to refinance. Here are some tips you may want to consider to help you prepare for refinancing:
1. Review your credit report and score
Your credit report and score might have changed since you took out the loan to buy your home. When refinancing your mortgage, lenders will check your credit history and score to determine your risk as a borrower. For a start, you may want to avail of your free annual credit report from Equifax, TransUnion, and Experian. Make sure that all the information in your credit report is accurate. If you found unnecessary changes in one of your credit reports, immediately report them to the proper authorities. Many lenders consider a “good” FICO credit score anywhere between 700 and 749, or it could be higher for self-employed individuals. Be cautious of lenders offering you to refinance even if your credit score doesn’t meet their standards as you could pay higher interest and fees.
2. Prepare your proof of income and other documents
Your prospective lender must know that you are consistently earning with the type of job you have as a self-employed individual in order to refinance. Since you don’t have any W-2 Forms or pay stubs to show, you need to show bank statement deposits, tax returns, and other documents. Most lenders will require that you have at least two (2) years of tax returns. You will also need to get your updated pay-off balance and other current information about your existing mortgage from your servicer. The longer your track record as a self-employed person, the better chances that your refinance application could be accepted.
3. Prepare for the upfront costs when refinancing
Closing costs are major upfront costs that you’ll need to settle when refinancing. They could vary from one lender to another and the state you’re living in. The national average costs to refinance including tax are $5,779. Depending on your loan size, closing costs could go around between 2 to 6 percent of your total loan amount. Keep in mind that your credit score, home equity, loan term, and your mortgage type could affect the closing costs that you’re about to pay. If a lender offers you a “no-closing cost refinance”, keep in mind that the lender could charge you a higher interest rate.
4. Shop for several mortgage lenders
Shopping for a mortgage lender is worth considering when refinancing simply because it allows you to compare and choose the best rate that you’re comfortable to repay. Shop for several mortgage lenders and narrow down your list where you plan to apply. When refinancing, some homeowners find it ideal to check offers from other lenders so they can compare it with their current lender.
5. Speak with a professional loan advisor before refinancing
Refinancing your mortgage could be beneficial if you want to secure a much competitive interest rate to help you improve your finances in the long run. If you’re self-employed and you want to refinance, a professional loan advisor could give you sound advice on everything you’ll need along the process.
You could take advantage of mortgage refinancing to further improve your finances as a self-employed homeowner. Lenders may ask you a lot of paperwork to prove your income and the ability to repay the loan that you’re applying for. Speaking with a professional loan advisor could help you navigate the refinancing process as a self-employed borrower. Get in touch with an RPM Mortgage loan advisor today to better understand your options.