- A huge factor in a refinance is a borrower's LTV.
- If a borrower loses his or her job, that will skew the DTI.
- Shop around for the best offer.
BILL'S ANSWER
Unfortunately, it's pretty unlikely, but not impossible. Apply and see what happens and also make sure that you know all of the variables that go into a mortgage underwriter's decision when looking at a refinance application. Since your debt to income will be high with the debt and without his income you could face some head winds.
The only way to determine whether or not you will qualify for a refinance loan is to apply for a loan with several different lenders and/or brokers. Unfortunately, it is very difficult to get approved for high DTI (debt to income) loans given the state of the credit markets, but I'd suggest applying and seeing what happens.
Bills.com makes it easy to compare mortgage offers and different loan types. Visit the Mortgage Refinance Quote page and find a loan that meets your needs.
Not only will these mortgage professionals be able to tell you whether or not your currently qualify, but if you do not qualify, they can tell you what aspects of your financial situation might cause you problems, and make suggestions about how to improve your chances to qualify for a loan.
Here are the lender's three main considerations:
First, your credit history is a major consideration when you are shopping for a new mortgage. A favorable credit score will increase your chances of finding the best loan with a low rate and low points, since you will qualify for better interest rates than those available to people with credit problems. Currently, the average interest rate for a new 30 year fixed-rate loan is 5.00%, and the average FICO credit score is 723. So, if your credit score is better than 720, you should expect to qualify for an interest rate of around 5.00%, or possibly lower. However, if you have had credit problems in the past, you could be forced to pay a significantly higher interest rate, which could make your monthly payments much higher. For example, the monthly payment on a $100,000 30 year mortgage at 6.5% is approximately $630, plus insurance, taxes, etc. If the interest rate on the loan increases to 9.5%, the monthly payment increases to $840, an increase of over $200 per month. As you can see, your credit score, which is one of the major determinants of your interest rate, is extremely important when shopping for a new mortgage.
The amount of equity you have in your home (or its inverse — the loan to value or LTV), and the length of time you have been paying on your current mortgage will also be major considerations. In order to lower your payments, you must either obtain a loan with a lower interest rate than your current mortgage, find a mortgage with a longer repayment term, or borrow less than the original balance of your current mortgage. For example, if you have $60,000 left to pay on a $100,000 mortgage, you could cash out $40,000 in equity and keep the same monthly payment as the old loan, assuming the interest rate and loan term remain the same. However, if the balance of your new mortgage will be more than that of your old mortgage, you must either find a lower interest rate or take a loan with a longer repayment term, if you want to keep your monthly payments the same. The ways to build equity are to either pay down your mortgage over time or to build equity by your home appreciating.
The third big variable is your debt to income ratio, or DTI. Debt to income is taken as a measure of your ability to comfortably make payments on the mortgage with your cash flow. Most lenders look at combined DTI, so the percent of your income that goes to debt payments (including mortgage, auto loans, credit cards, etc) to make sure that you can afford the loan. Some borrowers will allow stated income loans, where income is not formally verified, although given what has happened with defaults it is less likely than ever to get approved for a high DTI stated income loan. If your debt is so large that it prevents you from qualifying for a loan, you should review debt settlement and credit counseling options for getting out of debt.
As I mentioned before, you need to shop around with different lenders and brokers to find the loan that best suits your needs. I encourage you to start your search by visiting the Bills.com Home Refinance Resources page, where you will find a wealth of information about home refinance programs. If you enter your contact information in the Bills.com Savings Center at the top of the page, several pre-screened mortgage brokers will contact you to discuss your loan options.
If you cannot refi today, there is always a chance that you could build equity over time if your home appreciates or if you pay down debt.
I wish you the best of luck. I hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
March 17, 2010
June 01, 2009
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