Knowing what the lenders are looking for to determine your refinance loan application helps you to prepare for it well in advance. The information the lenders require may increase time to time. Nevertheless, it will not be less than what I listed below. You could say that these are the minimum information required. These factors are valid for home purchase loan applications and even for car loans or credit card applications for that matter.
Your Income Level: This is usually called household income and includes your partners income as well if you are buying (or owning) your home jointly (your friend’s income if you are buying with a friend). Refinance home mortgage loan lenders have a metric called income multiplier. For example if the metric is 3 times of the income, it means that you can only borrow 3 times of your earnings (or joint earnings). These metric changes as the lenders get optimistic/aggressive or pessimistic/cautious. Of course the lender will go through the details of your job as far as verifying it. They will at least ask your last three months wage slips. They may want to confirm with your boss. They do this in different manners, though generally by a letter. You will be asked to confirm in your application that it is OK for them to do so. The longer you were in your current job is the better, otherwise you will need to provide information about your previous jobs as well. Self employed people need to provide accounts and probably confirmation from their accountant. Your income is the very starting point of the process. There and than the lenders should be able to tell you how much maximum refinance home mortgage loan they can offer you.
Down Payment: You will need to put down certain amount of the property value. The higher the down payment, the easier the process becomes. Your application gets accepted easier, you are offered better rates and your payments become more affordable. Unless you have a steady, verifiable jobs and best of credit score you are looking at minimum of 15–20% down payment (in refinance cases, that would be the equity left in your home after the loan). They used to do a 25% down payment and no questions asked mortgages, but the lenders wised up the hard way not to ask anything. There is the issue of Private Mortgage Insurance (PMI) that the lenders would make sure you pay if they are lending more than 80% of the value of the property. So you save on that if you can put at least 20% (or refinance up to 80%).
Your Credit Score: It is wise to say that you should not start the process of refinance home mortgage loan application without checking your credit score. There are many free credit score providers available, but I would suggest that you get a copy of your credit report and go through it. This would at least give you an insight to how it works. There may be something that should not have been there and it may be corrected by just calling your credit card company or bank. Your credit score identifies you to the lender as a number. It really is that simple. John Smith becomes 708 to the mortgage underwriter. Looking after your credit score is a long, continuous process. However, if you failed on that do not despair, you can repair your credit in time. No not with the credit repair agents, just yourself. Starting from today, if you put your house in order, start making your payments in time and sorting out your financial affairs you can prepare yourself for a mortgage with good credit score 6–12 months down the line. If you have time, this would be much better option for you than trying to get a refinance home mortgage loan with bad credit.
Your Income and Expenditure Statement: Most refinance home mortgage loan applications will have a section to put your household income and expenditure or there will be an additional form. You will need to put all the sources of income in here with all the expenditures including credit card payments, car loan payments, children’ school fees as well as the usual monthly utility bills, grocery and clothing spending. This will allow the lender to assess your ability to afford the mortgage payments. They will ask you about six months bank statements to verify these spending, so there is no hiding unless you are making some cash and making payment in cash. Clearly high spending household will reduce the limit of refinance home loan amount they can get.
Your Residence Verification: Refinance mortgage loan lenders would want to verify your residence for at least 3 years. If you are in the voters’ registrar or some government data readily available to the lenders, you just need to put your addresses for 3 years. Otherwise, prepare the utility bills for these addresses, you will be asked.
All being well you should get an offer in the post.
External Factors: These are the factors that you can not affect. I am just going to list some of them, so that you know. General condition of the economy has direct effect on mortgages and loans. When the economy is good, everyone including lenders are optimistic and this effects their decision. They look at the applications negatively or positively. Rising or falling house prices have a positive or negative effect on your application, too. Obviously, if the house prices are rising, the security underlying the refinance loan is increasing and vice versa. I know you can not do much about it; however, it is the case. Should you not have time pressures, you may choose the best time to refinance or buy a house according to lenders sentiment. It helps.
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