What Do You Need to Know Before Mortgage Refinancing?
People decide to refinance for all kinds of different reasons. Mortgage refinancing could be the best fiscal decision you have ever made. No matter the reason why you are thinking about refinancing, there are somethings that you should know before you head out to apply for a loan. Understanding the following details will give you a leg up during the loan process and might even help you to get a lower rate and larger loan. If you are looking at refinancing your mortgage, call us today.
1. Understanding the Equity You Own
When you head down to meet with a lender, you should know how much of the principal balance of your home has been paid. The more equity you have in your home, the more you can borrow. The tricky part here could be if you bought your home during a market high. Some people that bought at the high may still be underwater or owe more on their loans than their home is worth. You will usually need to own at least a 20% equity stake in your home to be able to borrow off of it further.
2. Debt to Income Ratio
Lenders look at an important figure when granting loans to people. They want to make sure that you can afford to pay back your loan. If you make $4000 a month, that is great, but if you have $3500 in bills being paid to other lenders every month, you are probably not a great person to be giving more debt to. Understand what your debt-to-income ratio is. Have you accumulated more debt or taken a pay cut during the time that you have held your mortgage? You can calculate your debt-to-income ratio using your monthly income and debt payments. Lenders don't like to see this number any higher than 36% to make additional loans.
3. Credit Score
Interest rates may still be low, but lenders have tightened up on their requirements for loans over the last five years. You will probably need to have a credit score over 750 to qualify for the lowest interest rate loans. If you are looking into mortgage refinancing for a rate decrease alone, you may want to have a peek at your score to be sure that you will qualify for a loan that will be beneficial to you.
4. Understand the Line in Sand
Have a good understanding of what rates and terms will benefit you in the long run. It may not make sense to take out a loan if it is going to cost you much more in the long run. If you are unable to calculate where this will be on your own, bring it up to the lending representative you are working with. They should help you figure out what works best for you as long as you make them aware that it is a priority for you.
Could you benefit from Mortgage Refinancing?
Going into the lender's office armed with knowledge will help to keep the ball in your court as much as possible. Understanding where you stand financially when it comes to borrowing will show the lender that you mean business, and you are advocating for yourself. If you think you may benefit from mortgage refinancing, contact our experts to see if it’s a good fit for you.