How to Refinance for Low Income

With extensive research, you can find mortgage financing on a low income.

Refinancing a home loan is a challenge in and of itself. It requires a thorough review of your credit, income, assets, employment and residence history. No bank can guarantee a refinance without first reviewing a majority of your financial records. If you have low income, you're in for an even tougher battle. However, with careful research and the appropriate mortgage selection, you can refinance.

Things You'll Need

• Existing mortgage paperwork
• Income documents (W-2s, pay stubs, bank statements, tax returns)
• Property tax bill
• Homeowners insurance binder

Instructions

1. Pull a copy of your credit report. Visit the site listed in Resource 1. This is the federally-mandated site called Annual Credit Report. You can get a free copy here. You also should pay for a copy of your FICO score, too. This three-digit number between 300 and 850 represents your overall creditworthiness. An excellent score--above 720--will greatly help you when you begin searching for lenders.

2. Calculate your current debt-to-income ratio (DIR). This is the calculation lenders use to determine your ability to repay a mortgage. Divide the total of all monthly, credit-reportable expenses by your total gross income. Most lenders will not finance a customer with a DIR higher than 50 percent--even this is a stretch figure, most lenders like to see a DIR below 45 percent.

3. Play with the mortgage calculator found in Resource 2. Using your FICO as a guide, estimate a likely mortgage rate. Look at major bank rates and try to determine a fair rate for which you'll qualify. Enter the mortgage amount you need and this rate. Consider adding in all monthly bills to reduce your DIR. Make sure you increase the mortgage amount as you consolidate, though.

4. Use the mortgage payment you calculated to perform a new DIR calculation. In an ideal scenario, you can consolidate all loans into the mortgage so that the only bill you use to perform a DIR calculation is the mortgage payment. This should drastically reduce your DIR percentage.

5. Research lenders based on your FICO. While banks and credit unions will finance customers with great credit, you may need to also look at finance companies if you have a high DIR. These loans are considered high-risk. Understand, also, that you'll likely pay more in fees and interest for a high DIR loan.

6. Compare all loan offers after you apply. Make sure the cost of fees and interest does not outweigh the advantage of refinancing the mortgage. A high DIR need not and should not force you into a sub-prime, high-cost loan--especially if you have good credit.

References

• Bankrate: BofA's Zero-Down Program Aimed at Low Income Borrowers
• Bankrate: 4 Steps to Refinance Your Mortgage

Resources

• Annual Credit Report
• Mortgage Calculator