Preparing for a refinance

Start preparing for a refinance by losing the notion that it probably won’t work for you. Many consumers speak to one lender and may be turned down and decide to stay out of the refinance market, but you could be doing yourself a disservice.

What you need for a successful refinance

Your personal circumstances and those of your residence could change dramatically in a matter of months. Loan programs available at a new lender could dramatically change your prospects of a successful refinance and as most lenders do not charge an application fee, it can hardly cost you to find out what your true mortgage position is. Rule number 1 therefore is: never assume the worst.

Appraised value/Adequate equity

If you are considering a rate & term refi where your goal is simply to lower your mortgage payment, or change the number of years on your loan, that’s a rate and term. Your loan amount may be as high as 97.5% of the value of your home. Let’s say you live in an area of the country where values are going up an average of five percent per year, and your house was worth $200,000 when you tried to refinance two years ago. Your loan amount would have risen from $195,000 then to as much as $215,000 now, which could mean the difference between a refinance loan not being possible then and being viable now.

Ability to repay

Has your income circumstances changed or are they about to change? You could have been turned down for lack of verifiable income or you could now be in a better paying job. The latter position is a good thing to have but if you were earning income and not reporting it accurately, now is the time to speak with your tax preparer. An increase in income on your 1040 could make you eleigible for a refinance loan.

Adequate credit

Many consumers want to solve their credit problems by themselves. They start by paying off old items on their credit report and may be surprised to see their scores fall instead of rise. Or they may assume they must pay off a debt in its entirety to qualify for a mortgage refinance. That’s not always the case but a thorough analysis by a mortgage loan officer dedicated enough to spend the time with you, can make the difference on your credit score. Before you go spending money with a credit repair service, ask for advice from your mortgage professional.

Does it make sense?

A dedicated professional will likely give you his or her opinion on whether a refinance loan is right for you. It may make more sense to take cash out of your home to pay down high rate credit cards. Some customers are reluctant to do this, not realizing that their equity will build faster with a lower rate loan and they could recover the “used” equity in a short time if values continue to rise conservatively, but steadily. It may make sense to wait a few months depending on where you see interest rates going, or it may pay off in the long run if you act now. But the best way to prepare for a mortgage refinance is to ask your loan officer some questions.

photo courtesy of Nancy Hugo, Creative Common License 2.0, modified from the original 640x528 to 640x360.