There are certainly many advantages to a home loan refinance. If you have been in your home for awhile, there is a good chance that you have built up quite a bit of equity in your home. Even if it has not been that long since you purchased your home, if you live in an area where prices have appreciated considerably, you could still have a significant amount of equity in your home to tap into for a home improvement, purchase or to use for debt consolidation.
If you are considering a home loan refinance, it is important to know what you should expect. In some ways, getting a home loan refinance is not much different from getting your first mortgage with the exception that you already have the house! You will want to make sure that you look for the best terms and interest rates. In a similar fashion, the lender will want to make sure you are credit worthy before they approve you for the loan.
One of the first questions the lender may ask is why you are interested in refinancing. Be honest with the lender, because this may help him or her to design a home refinance package that perfectly suits your needs. Even if you are planning to consolidate your debts with your home refinance, be sure to mention this when you apply.
Be prepared for the fact that the lender will run a credit check on both you and any co-borrower in order to determine the level of credit risk you present. This is part of the process of becoming pre-approved in the home buying process. The lender will check your credit score and also check your credit report to determine the number of delinquencies you may have, the number of open accounts you have and the balances on those accounts.
The lender will also be interested in your income and various expenses. This is to ensure that you will be able to actually afford the proposed home loan payment. The underwriting guidelines for every lender are different; however, the general rule of thumb is that a prospective buyer should not have a debt to income ratio that is higher than 36%. Additionally, lenders usually prefer for your total housing expenses not to exceed 28% of your income. Of course, there are some exceptions to this rule. In certain circumstances, lenders will approve loans for buyers who have a debt to income ratio up to 40%. You can usually qualify with a higher debt to income ratio if you are able to make a larger down payment and/or if your credit rating is good enough.
To ensure there are no surprises when you sit down with the lender to discuss your home loan refinance, it is a good idea to check your own credit score in advance and be certain there are no mistakes or discrepancies before you submit your home loan application. If you do find any discrepancies, take the time to have them fixed before you apply for a home loan refinance.
By: Alan Lim
Posts Tagged ‘Rule Of Thumb’
Home Loan Refinance – A Guide to Getting One
May 15th, 2010Posted in Article
Tags: Co Borrower Consolidate Debts Consolidate Your Debts Credit Check Credit Report Credit Risk Credit Score Debt Consolidation Delinquencies First Mortgage Good Chance Home Buying Process Home Improvement Home Loan Interest Rates Loan Payment Open Accounts Prospective Buyer Refinancing Rule Of Thumb
Some Refinance Loan Tips to Get Better Rates
November 27th, 2009
There are a few refinance loan tips you can take advantage of as well if you want to get the best rates for your mortgage.
- Check your credit rating. Make sure it’s accurate. You can do this by requesting for a copy of your rating report way before you apply for refinancing. This way, you can still drastically improve your rating if they find that you are a consistent payor.
- There is no need to pay for appraisal costs if you have an untarnished credit record. If your lender insists on asking you to pay for an appraisal then you might want to look for another broker or lender.
- As a rule of thumb, the purpose of your equity loan should be able to outlast the payment term. This rule is subject to interpretation, and it’s really up to you, the debtor, to decide if the equity’s worth buying a certain object for. Ask yourself – is it worth paying for that Mercedes Benz convertible for the next 20 years?
- Don’t always trust refinancing loans that boast of ‘no refinancing costs’. Many refinance loan tips always suggest that there’s no such thing as a free lunch, and even if the broker or the creditor say they’ll take care of all the closing costs, the fees they would have charged you upfront now are in the guise of high monthly payments.
- Make sure that the refinancing scheme you’re availing of does not come with prepayment penalties. These are fees for the borrower if he decides to get out of the original mortgage. If you’re assigning your broker to take care of prepayment matters for you, well and good, but some lenders may make the tempting offer of giving lower interest rates as a tradeoff for prepayment penalties. When this happens to you, weigh your options carefully so you can come up with the best plan.
- Try to have several fees waived to cut down on costs. Legal, appraisal, and application fees can run up to a couple of thousand dollars and there are lenders and brokers who agree to having these waived for certain borrowers. However, you’re likely to pay a bigger amount overall because the brokers and the lenders have to recoup their investment.
- Preselect the right program by checking different plans online. Try the online calculators available on several websites so you’ll know the most practical solution for your refinancing.
- One of the most valuable Mortgage refinance tips an advisor can give you is that you can add the closing costs and the points to your refinanced loan. This is recommended for people who have been on mortgage for more than 3 years, because by this time, they would have already subtracted a couple of thousand dollars or more from their loan balance.
You can find many several refinance loan tips from the Internet and from the people around you. Just make sure that you talk to several agents or brokers prior to starting your refinance plan. When they realize that you are well-informed on the subject matter, it’s more probable that they would give reasonably fair rates to you.
By: Bob Cohen