You may be able to get a lower interest rate, which could save you money on your monthly payments. You may also be able to get a shorter loan term, which could help you pay off your mortgage faster. You may still be able to qualify for a refinance loan if you have bad credit, but you may have to pay a higher interest rate. Before we dive into it lets find out what a refinance loan is.
What is mortgage refinancing?
Mortgage refinancing is the process of replacing an existing mortgage loan with a new loan. The new loan pays off the old loan, and you begin making payments on the new loan. Mortgage refinancing can help you get a lower interest rate, change your loan term, or consolidate multiple debts into one loan.
When you refinance your mortgage, you’re getting a new mortgage loan to pay off your current mortgage loan. That means you’ll need to go through the application process again, including a new credit check.
How does refinancing affect your mortgage?
Refinancing can lower your monthly payments, but it may also increase the total amount you pay over the life of the loan. When you refinance, you’re getting a new loan with different terms. That could mean a lower interest rate, shorter loan term, or both.
A lower monthly payment could free up money in your budget for other things. But keep in mind that a lower payment may also mean you’re paying more interest over the life of the loan.
A shorter loan term could help you pay off your mortgage faster. But it may also mean higher monthly payments.
Is now a good time to refinance?
When Interest rates are at historic lows, it might be a good time to refinance. But there’s no one-size-fits-all answer. It depends on your personal financial situation.
Before you decide to refinance, make sure you consider the following:
- How long do you plan to stay in your home?
- How much equity do you have in your home?
- What are your current interest rates and loan terms?
- What are the current market interest rates?
- How much will it cost to refinance?
If you’re not sure whether refinancing is right for you, we can help. We’ll take a look at your current situation and help you decide if it’s the right time to refinance. Contact us today to get started.
6 basic refinancing requirements
1. A credit score of 550 or higher
Your credit score is one of the most important factors in whether you qualify for a refinance loan. Lenders use your credit score to determine your risk level, and the higher your score, the lower your risk.
A credit score of 550 is the minimum score you need to qualify for a conventional refinance. But if you’re looking for a government-backed loan, you may be able to qualify with a score as low as 580.
2. A debt-to-income ratio of 43% or lower
Your debt-to-income ratio is the total amount of your monthly debt payments divided by your monthly income. Lenders use your debt-to-income ratio to determine how much of a mortgage payment you can afford to make.
For most loans, you’ll need a debt-to-income ratio of 43% or lower. But if you’re looking for a government-backed loan, such as an FHA loan, you may be able to qualify with a debt-to-income ratio of 50% or higher.
3. A loan-to-value ratio of 80% or lower
Your loan-to-value ratio is the amount of your loan divided by the appraised value of your home. Lenders use your loan-to-value ratio to determine how much equity you have in your home.
For most loans, you’ll need a loan-to-value ratio of 80% or lower. But if you’re looking for a government-backed loan, such as an FHA loan, you may be able to qualify with a loan-to-value ratio of 96.5% or higher.
4. Steady employment for at least the past two years
Lenders want to see that you have a steady job and a history of employment. They’ll usually require that you’ve been employed for at least the past two years.
If you’ve been employed for less than two years, you may still be able to qualify for a refinance loan. But you may need to provide additional documentation, such as pay stubs or tax returns, to prove your employment history.
5. A history of making on-time payments
Lenders want to see that you have a history of making on-time payments. They’ll pull your credit report to check your payment history.
If you have a history of late or missed payments, you may still be able to qualify for a refinance loan. But you may need to provide additional documentation, such as an explanation of your circumstances, to prove that you can make on-time payments.
6. Enough equity in your home
Lenders want to see that you have enough equity in your home to cover the costs of refinancing. They’ll usually require that you have at least 20% equity in your home.
If you don’t have enough equity, you may still be able to qualify for a refinance loan. But you may need to provide additional documentation, such as a letter of explanation, to prove that you have the financial resources to cover the costs
the process of refinancing a mortgage?
The process of refinancing a mortgage is relatively simple. But there are a few things you need to know before you get started.
Here’s a step-by-step guide to the mortgage refinance process:
- Check your credit score and report
The first thing you need to do is check your credit score and credit report. This will give you an idea of where you stand financially and what kind of interest rate you can expect to qualify for.
- Shop around for lenders
The next step is to shop around for lenders or speak to a mortgage broker. You’ll want to compare rates, fees, and terms to find the best deal.
- Compare rates, fees, and terms
Once you’ve found a few lenders that you’re interested in working with, it’s time to compare rates, fees, and terms. This will help you narrow down your options and choose the best lender for your needs.
- Apply for a loan
After you’ve chosen a lender, it’s time to apply for a loan. You’ll need to fill out an application and provide some documentation, such as your credit report, income statements, and employment history.
- Get pre-approved
Once you’ve applied for a loan, the lender will do a pre-approval process. This is when they’ll take a closer look at your financial situation and make sure you’re a good candidate for a loan.
- Choose the right loan for you
After you’ve been pre-approved, it’s time to choose the right loan for you. There are many different types of loans available, so make sure you compare rates, fees, and terms before you make a decision.
- Refinance your mortgage
Once you’ve chosen a loan, it’s time to refinance your mortgage. The process is relatively simple and can usually be done online or over the phone.
- Start making your new payments
After you’ve refinanced your mortgage, you’ll start making your new payments. Make sure you keep up with your payments and don’t miss any.
If you need help during the mortgage refinance process, an IMI Financial Group mortgage broker can help you speed up the process by comparing rates between hundreds of lenders.