How to Qualify for a Refinance on Your Home
There are many reasons you might want to refinance your home: to get a better interest rate, to get more favorable mortgage terms or to take some equity out of your home. But before you can refinance, you need to decide if you qualify for the refinance. With a few simple calculations, any borrower can learn if he can qualify for a refinance on his home.
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Instructions
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Check your credit score. First, read through your credit report and report any errors to the credit bureau to ensure the highest score possible when actually applying for your refinance. Second, check the score. To get a conventional or government mortgage, a borrower has to have a minimum middle credit score of 620. If your score is lower, a subprime mortgage might be your only option. Also, check your report for any mortgage payments that were late. A borrower cannot refinance until one full year after a payment that was 30 days late, or two years after a payment that was 60 or more days late.
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Calculate your debt-to-income ratio, before and after the refinance. Add up all of your current debt payments, and divide that number into your monthly income before taxes, as reported on your tax returns. Use a mortgage calculator, such as the one at MortgageCalculator.org, to calculate your new monthly mortgage payment. Replace your old payment with the new one, and calculate your debt to income ratio again. Your two ratios should both be under .50 to qualify. Anything higher will not qualify.
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Calculate your loan to value. Take the amount owed on your mortgage, and divide it into the value of your home. If you are not sure of the value, use the tax value as listed on your last tax bill. If the ratio is less than .97, you should be able to qualify for a mortgage refinance.
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Tips & Warnings
Call your current mortgage servicer to see if you can refinance your current mortgage for little to no closing costs by renegotiating the current terms.
Do not order an appraisal. Due to new appraisal laws, the lender is required to order the appraisal through a third-party service.
