Understanding basic lender guidelines when refinancing your home loan can speed the process. Lenders do differ, and depending on your loan program, the qualifications for a refinance can change. But overall, lenders consider specific areas such as income and credit history to determine eligibility. Meeting these requirements are key to an approval.
Take a close look at your income to see if you meet the qualifications for a refinance. Lenders considered your monthly or annual income when approving your original home loan request. But over the years, income can decrease or increase, and some people quit jobs to start their own businesses. These situations can impact eligibility for a mortgage loan. Income that remains the same or increases may not affect refinance approvals. But if you're unemployed, experienced a drop in income or decided to start your own business, lenders may feel that you no longer qualify for the mortgage and deny your application for a refinance.
Credit is another major factor that impacts refinance approvals. Credit scores that increase since applying for the original home loan can help you qualify for a low rate mortgage. But if you've experienced credit problems since the original loan, getting approved for a new mortgage loan can prove difficult. You want a score of at least between 620 and 680 if applying for an FHA mortgage loan. Paying bills on time and getting rid of debt can increase your score and help you qualify for the best mortgage loan.
Knowing your reasons for wanting to refinance your mortgage can help lenders determine the best home loan program for you. Good reasons to apply for a new mortgage loan include converting an adjustable rate mortgage to a fixed rate loan, eliminating private mortgage insurance, acquiring a better mortgage rate or cashing out the equity.
Paying closing costs and signing the loan documentations are the final step in refinancing a mortgage. Keep your refinance on track by preparing for closing costs in advance. These fees pay for the loan process and services rendered by third-party companies, such as the title company, the appraisal company and the attorney. Closing costs are between 3 and 5 percent of the loan balance.
The main purpose of a mortgage refinance is to get a new home loan with better terms and rates. Accomplish this by shopping around and comparing lender offers. Ask a broker to compile loan quotes from a minimum of three mortgage lenders. Review each quote to compare the interest rate offered, the estimate closing costs, monthly payments and other terms. For example, if there a prepayment penalty? Is it a fixed rate or adjustable rate mortgage? Is the mortgage a 30-year term? Pick the mortgage offer that's right for you.