How to Qualify for a Refinance
Before granting a refinance, lenders go over a few variables for each customer. If you know what you need in order to qualify, you can go to your lender knowing that the odds are in your favor. Here is how you can increase the chances that you'll get the loan you need.
- Get copies of your credit report and score; this can easily be done for free by visiting annualcreditreport.com. You will need to provide your legal name, birthdate, social security number, and your credit card data. The report is free, but getting your score will cost about thirty dollars.
- Analyze the report when you get it and report any mistakes to the appropriate credit bureau. You can use the same service through which you ordered the credit report. If there are late payments on your mortgage, you won't be able to refinance until up to three years have passed. If there are any judgments or liens on your report, they have to be paid before a refinance is given.
- Look at your credit score. If it is higher than 620, you will likely be able to get a conventional home loan. If it is above 580, you can get an FHA loan; scores below 580 will have a harder tiem and will have to choose subprime financing.
- Find out how much money you make each month. Simply divide the amount on your W2 by twelve; if you work for yourself, take the two year average and divide. Then, take all the debts from your credit report and divide the total into the amount you make per month. That number is your debt to income ratio, and if it's below 50%, you are more likely to qualify for a refinance.
- Look at home values in your chosen area; check homes within a mile of your home that are comparable in age and size. Find an average, and divide the amount you owe on your mortgage by the value of the home. The result is your loan to value ratio, and if it's 96.5% or less, you will probably get the refinance you need.
A few warnings: Check your credit report about two months before you apply for a refinance to allow time to correct any errors. Making corrections will almost always raise your credit score. Another good way to raise it is to pay all balances down to less than thirty percent of available credit. The market is volatile right now, making it harder to qualify for a refinance.
