If you identify as a homeowner or make monthly payments on your car then you may be aware of the option to refinance your loan. Refinancing your house or car loan simply means to finance your investment again on different loan terms, usually with a lower interest rate. This is a good idea for most homeowners when rates significantly lower than what they currently are. Depending on the loan term, choosing to refinance can save individuals hundreds of dollars per month. However, this loan option is not an to everyone. Have you been wondering if you quality for refinancing? Consider asking yourself these questions to see if you meet the criteria.
Lenders seek a high percentage invested into your equity, usually around 20%. To estimate your equity, divide the amount you are wanting to borrow by the value of your home. Take your amount and subtract 100 to find your equity percentage. If your percentage is around or over 20%, this increases your chances of refinancing.
Aside from holding 20% equity stake, good credit score is another key factor lenders seek before the approval of the loan. The minimum most lenders require is a score of 600-650, while some lenders seek credit scores of 720 or above. If your credit score is low, focus on changes you can make to gradually increase the number. Your credit score comes from five different factors:
Lenders study your monthly payments including mortgage, credit cards, and car loans that are relative to your income. Ensuring your payment history is correct with no missed payments will increase your approval of a refinance loan. Lenders seek ratios no higher than 38% when analyzing your debt-to-income.
If you are looking to reduce your monthly mortgage payment, refinancing your home is a great option! Upon going through the process you will be saving cash each month, allowing you to invest in other expenses.
Choice Properties understands your needs and desires when it comes to the home search. We are here to help you define what you want, seek the best property and move forward feeling educated and able to make good decisions throughout the process. You can trust us to help you navigate it with the best real estate agents working for you. Call us to get started on your dream home search today.
Looking to purchase a new home or refinance requires an understanding of the basics of qualifying for a mortgage. It helps to know some basic steps can help prepare for what is ahead. Learn how to be in a position ahead of time to get the best deal available.
A credit report is required from three major credit bureaus to document payment histories for auto loans, personal loans, credit cards, debt collections or other negatives. Credit scores are considered a predictor of lending risk. The higher a score, the better it looks to a potential mortgage lender. The following factors may also play a role in credit scores:
Debt payment history, including late payments can influence credit score
Credit card balances of more than 30-50 percent of credit limit can have a negative impact on a credit score
Collections can damage your credit score but can be negotiated with the agency
Bankruptcies and foreclosures have a general waiting period of around 2-4 years following insolvency prior to qualifying for new mortgage financing
A mortgage lender wants to know an individual has the financial ability to repay a home loan. W2 income (working for somebody) is considered the most stable source of income which varies little from month to month. Self-employed income is riskier in a lender's eyes as it can vary widely month to month in terms of generating revenue to pay a loan. Some helpful hints include:
Document income with W2s, paystubs and tax returns to demonstrate financial stability
Self-employed individuals will be required to document income on tax returns and should be prepared to show the documents to potential lenders
Debt-to-income ratio is important as it shows what proportion of income goes to debt payoff and risk for lending. Typical DTI should be lower than 45%-50% going to debt.
The property being purchased will serve as collateral for the mortgage. A lender will look at the value of the property as one of the most important factors. A full appraisal may be required to verify the value and condition of the property.
The following are some great next steps to take when looking to take out a mortgage for a property:
Check credit and make sure any issues are cleared up ahead of time.
Pay off outstanding debt before applying for a loan. The lower the DTI ratio, the easier it is to get desirable financing terms. This can save money in the long run.
When refinancing, take care of necessary repairs before having an appraiser come out. This will help the home value.
Having a financial portfolio that looks solid, has low debt and high credit scores can greatly increase the chances for getting a mortgage with better financing terms. Understanding how lenders think and preparing the portfolio will help individuals prior to applying for a loan search for a great deal and support a smoother process overall.