Before you can successfully get yourself a home loan refinance, lenders usually need to evaluate whether or not you qualify for the said loan. Expect them to go through your credit records, ask you for supporting documents to prove your financial capability, your income, and your collateral. So, to save yourself time, here are some guidelines to help you determine whether or not you qualify for home refinancing.
Your credit history
You should probably know that your credit history has a lot to do with loan approval. If you intend to get a home loan refinance anytime soon, make sure everything about your credit rating is in order. The better your credit history and rating is, the easier it can be for you to get approved, more so to get a good interest rate. Do not get the wrong idea though. People who have poor credit histories may still get themselves some refinancing, but the interest rates can be relatively steep.
If you are planning for a home loan refinance anytime soon, it should also be a good idea to get a hold of your credit reports. Find out how you stand as of the moment, and look for ways to improve your current records. Try to come up with a means to pay your credit card debts, avoid new loans, and pay off all the smaller debts. Do not open a new credit card account, no matter how tempting it would be, as it can only add more to your financial burden.
Your employment or source of income
Lenders usually favor those who have stable sources of income or employment. Remember that lenders are in the business to get them some income as they offer you some home loan refinance, so they will only bank on those who can religiously pay their dues. It is for this reason that they mostly hesitate on those who shift jobs too much, or impose stricter rates to balance out the risk. A stable income is proof that you will be able to pay off your debt. The higher your income, the higher the loan you will qualify for.
Here is how lenders usually determine whether or not you are a low-risk borrower. They take a good look at your income, and determine just how much of it goes to your monthly payments and other loan payables. If your total debt is more than 38% of how much you earn monthly, then you are considered a potentially good borrower.
Your home equity
Home equity, simply put, is the quantitative difference between your home's assessed value and the balance that you need to pay from your mortgage. As your home equity increases, you are getting closer to being free of your mortgage loan. The lower the remaining balance you need to pay, the higher loan you can borrow for your home loan refinance. Note that lenders usually limit your loan amount to up to 80% of your outstanding balance.
Save yourself and your lender the time it will take for evaluation. Think of your financial circumstances first and keep these three in mind. If you are qualified, then go ahead and get your home loan refinance from a reliable mortgage company.
1. Don't buy or lease an auto! Lenders look carefully at your debt-to-income ratio. A large payment such as a car lease or purchase can greatly impact those ratios and prevent you from qualifying for a home loan.
2. Don't move assets from one bank account to another! These transfers show up as new deposits and complicate the application process, as you must then disclose and document the source of funds for each new account. To eliminate potential fraud, most loans require a thorough paper trail to document the source of all funds. The lender can verify each account as it currently exists. You can consolidate your accounts later if you need to.
3. Don't change jobs! If at all possible, try not to make a career move during the time between your mortgage application and the closing on the home you are purchasing. But, you ask, "What if it is a BETTER job, for MORE money, in a DIFFERENT field?" Still, try and wait until AFTER closing. One of the factors mortgage companies consider is length of present employment; they are partial to stability. At the very least, changing jobs initiates the need for more paperwork, and may delay your closing.
4. Don't buy new furniture or major appliances for your new home! If the new purchases increase the amount of debt you are responsible for on a monthly basis, there is the possibility this may disqualify you from getting the loan, or cut down on the available funds you need to meet closing costs.
5. Don't run a TRW report on yourself! This will show as an inquiry on your lenders credit report. Inquiries must be explained in writing. Try to keep everything the same as far as credit goes as when you where initially pre-approved unless told different by your loan officer.
6. Don't attempt to consolidate bills before speaking with your lender! The lender can advise you if this needs to be done. Also, do not pay off any old collection accounts on your credit report unless you were specifically told to do so by your mortgage professional.
Paying off old collection debt will often signal to the credit reporting agencies that there is new activity on an negative entry and actually lower your credit score.
7. Don't pack or ship information needed for the loan application! Important paperwork such as W-2 forms, divorce decrees, and tax returns should not be sent with your household goods. Duplicate copies take weeks to obtain, and could stall the closing date on your transaction.
8. Don't stop making your regular monthly payments after applying for a mortgage. Borrowers refinancing their home to payoff other debts sometimes stop making their regular monthly payments because they are going to payoff the debt. This can cause problems during the loan process because not making payments on time may hurt your credit rating. Lower credit scores may cause your interest rate to go up or result in you being denied credit.
9. Don't ignore to tell your mortgage broker about any material changes in the purchase agreement you and the seller come to agree upon after the mortgage process has begun. A slightly lower sale price can alter the loan-to-value ratio and requires re-submission of loan documents. Your mortgage broker and lender have to be made aware if any addendum is later attached to the purchase contract.
10. Don't co-sign on a loan for anyone else. Although you will not be making the payment, the lender still views this as your debt.
Both Alan Lim & Mark Shah are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Alan Lim has sinced written about articles on various topics from Colorado Springs Refinance, Flirting Tips and Online Dating. Want to get financial freedom with the least risk? Allow us to help you deal with the intricacies of finances. Please visit or. Alan Lim's top article generates over 135000 views. to your Favourites.
Mark Shah has sinced written about articles on various topics from Finances, Relocation. Mark Shah is a residential and commercial mortgage banker with Great Southwest Mortgage. Great Southwest Mortgage is the Retail Lending arm of First Magnus Financial Corporation and licensed in 49 states. For more information you can visit. Mark Shah's top article generates over 1000 views. to your Favourites.