July 26th, 2010 9:46 AM by Diego Quintero
Thirty-year fixed loans have hit record lows in four of the past five weeks. Homeowners have found it increasingly attractive to consider the opportunity to save money on their mortgage payments. It’s important to find out exactly what is entailed in the process, and the cost to find out if it will work for you and your family. It may prove to save you some money to know a few possible roadblocks before you get started.
First and foremost, the value of one’s property will be among the most important aspects of the refinance process. Additionally, it is the most costly aspect of determining whether or not a refinance can be successful. Based on the size of the property, a typical homeowner will spend slightly less than $500 to obtain an appraisal report. This might be one of the toughest components to side-step. But, it may behoove you to call a Realtor and ask for a comparative analysis. Using a 10% tolerance, you might be able to determine whether or not your home will appraise appropriately to satisfy the highest acceptable loan to value ratio.
Income and time-on-job are critical aspects of obtaining approval as well. If you have recently taken on a new job you will find greater success if you wait six months before applying for the new mortgage. Ideally, the homeowner should be at less than a 28% front-end ratio. This means that the monthly mortgage payment divided by the gross monthly income should be less than .28. Moreover, the back-end ratio should be less than 36%. The back-end ratio includes all other consumer debt and the mortgage payment. As an example, if you make $10,000 per month, your expenses should not exceed $3,600, altogether, or 36% of your income.
Credit scores and history are equally as important as appraisal value and income. Accessing your free annual credit report may be the best way to monitor reported content. If you borrow less than 35% of the credit limit offered on your credit cards, you will find that your scores will be more agreeable. There is no substitute for consistent, on-time payments, it is invaluable. Low credit scores will cost you in all aspects of borrowing. From car loans to credit cards, your score will determine your interest rate and can affect your mortgage rates and viability, as well.
There are lots of aspects of the refinance that may become a challenge. Ensuring that all of the aforementioned elements are within the risk tolerance of bank guidelines, you will find that the refinance process will go much smoother. On average refinance customers are saving over $125 per month, some saving hundreds of dollars. Although market conditions are down, you might consider renting your current residence and moving-on to buy a new property. Consult your CPA and your trusted mortgage broker to determine how rental income is calculated and whether or not a new home purchase is the right move. If you have an FHA loan on your home now, there may be a way to refinance without needing an appraisal at all. With so many variables, it is always helpful to ask your mortgage professional. Don’t delay too long, this once in a lifetime opportunity to borrow cheap money won’t last forever!
Your Trusted Mortgage Broker,
Diego L. Quintero