5 Ways to Rock Your Refinance
Sponsored by GuidetoLenders.com
If you’re like most homeowners looking to refinance, you want to get through the process quickly and easily – but your real goal is to secure the lowest mortgage rate available. Whether you want to reduce your monthly payment or shorten your loan term, you can totally rock your refinance if you understand these five things.
Move the metrics in your favor
Lenders assess the credit score, debt-to-income ratio, and the loan-to-value ratio (LTV) when qualifying a borrower for a mortgage. Here’s how you can improve your chances of getting approved (and possibly get a better rate) by positioning yourself to meet these major lending requirements.
1. Manage and improve your credit score
Each lender is different, but most require a minimum credit score of 640 to qualify. For more favorable mortgage rates, however, you’ll need a credit score of 740 or better.
2. Reduce your debt-to-income ratio
The debt-to-income ratio factors the minimum monthly payment on all of your debt as compared with your gross monthly income, and most lenders won’t approve a loan if the ratio is greater than 41 to 43 percent. If you have credit card debt and cannot pay off your balances all at once, you could pay down the balance on each card to less than 25 percent of your credit limit and avoid taking on new debt.
3. Save money to avoid private mortgage insurance (PMI) and to pay for closing costs
The loan-to-value ratio is another metric lenders use to evaluate whether to approve your refinance. For conventional loans, most lenders require PMI if a borrower’s equity stake is below 20 percent. That means you could avoid the PMI requirement (and possibly get a better rate) if you infuse cash into the refinance transaction. Talk with your lender about how this option can affect your overall financial situation, and make sure to retain enough cash to pay for closing costs. They can amount to 6 percent of the loan in some states.
4. Organize your documents
Be prepared to document every dollar that goes into or out of your bank account for as long as six months before you close on your mortgage. Normal payroll deposits and monthly expenditures are less likely to be scrutinized; but you should avoid transferring money between accounts, opening new accounts, making large purchases, and depositing cash until after your loan funds.
Above all, shop! Compare lenders, mortgage rates, and fees.
You may think it easier to refinance with your current lender – but in fact, the only way to be certain you’re getting a rock-bottom rate is to shop for your lender and compare mortgage rates and fees.
5. Consult several lenders
Once you have decided on the loan program you want and how you’ll pay for the refinance, you should consult community banks, online-only lenders, credit unions, mortgage brokers, and national lending institutions. Rates fluctuate frequently, so make sure to compare rates on the same day. The easiest way to compare lenders and rates in real time is with a mortgage comparison shopping website.
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