Wednesday, August 22, 2012, AM | 3 Comments
With record-low mortgage rates today, it’s very tempting to set out and refinance a mortgage to potentially save hundreds a month.
The problem with refinancing a home today, though, is that the lenders have become stricter with their lending guidelines.
If you’re thinking about refinancing today, here are five things you may want to know about, brought to you by the guys at Kaplan Financial. If you’re looking for quality business and financial training, visit them at financial.kaplan.co.uk.
Your Credit Score
Your credit score is by far going to be one of the most important parts of your application. While this is only a sliver of the approval process, you have to realize that the days where the banks would just approve you based on your score are long gone.
For those who have scores above the mid-700 range will find that they will generally get the best mortgage rates on the market today. Remember, most lenders will charge a lot of up-front fees.
Don’t refinance unless you know your credit score is superb. Failing to have a great score will just mean you’re throwing your money away.
Most lenders will take a look at the equity you have built up in your home. The general rule of thumb is that you should have least 20 percent in equity.
So for instance, if you owned a home worth $200,000, your mortgage balance should be at least $160,000 or less. If your mortgage is worth more than what your home is worth today or you have less than 20 percent equity, then you probably won’t qualify with most banks out there.
When refinancing your home, you have to work out a budget, especially if you’re going from a 30-year to a 15-year. Another factor to look at are the rates. Are you going to apply for a fixed rate or adjustable rate? No matter what you do, your mortgage payments are going to change.
Lenders are going to take a close look at your debt ratio when applying. If your mortgage payment is more than 30 to 40 percent more than your monthly income, it will be incredibly hard to refinance.
So if you make $3,000 a month and are looking to pay a $1,500 mortgage payment, banks will probably advise against it.
There are a few major obstacles that banks generally don’t like to deal with. These obstacles can include second mortgages and liens. Because the process is complicated, most banks don’t want to get involved.
When a second mortgage is involved, the first mortgage bank will have to pay off the mortgage and then refinance. As you can see, throwing that second mortgage lender in the mix will just add to mess since that payment will have to be repaid.
If you’re unhappy with the APR you may receive, there’s a good chance that you can get a lower rate. This is generally done by paying higher fees. Don’t get too excited yet, though.
With higher fees, you may find that it doesn’t add up in the long haul, especially with 10 and 15-year mortgages. Be sure to add up the numbers to make sure paying extra fees is worth knocking down your interest rate.
If you feel that you meet most of the criteria mentioned above, there’s a relatively good chance that you will get approved for a refinance.
Make sure that you talk with a handful of banks. Generally, three to five banks will be more than enough. Explain to them what you’re looking for, and what you’re looking to save every month.
Even though your mortgage payments will be lower, it doesn’t always mean you’re going to save.
With that being said, do your due diligence with your numbers and bank to make sure you’re getting the best potential refinance scenario possible.Facebook.com/doable.finance