- Do not accept the first offer you receive -- accept the best offer.
- Walk away from a bait-and-switch loan rate.
BILL'S ANSWER
Banks want three qualities in a perfect borrower:
- Stable income
- Attractive credit history
- Low debt-to-income ratio.
If a potential borrower lacks in any one (or more) of these, the potential borrower may find qualifying for a loan difficult.
You received an attractive offer given your somewhat tarnished credit history. Because of your low credit score, I encourage you to be very careful about a “bait and switch.”
As with all major financial decisions, I recommend seeking competing quotes. Do not accept the first offer you receive. Accept the BEST offer. Bills.com makes it easy to compare mortgage offers and different loan types. Please visit the Bills.com Free Refinance Quote page.
Some lenders and brokers entice borrowers to the closing table with promises of great loan terms, only to raise the interest rate by several percentage points on the day of closing. Many borrowers in that situation sign the less favorable loan because they feel trapped, and do not understand what a huge difference 2% will make in their mortgage payments each month. I only point this out to you so that if something like that happens to you, you will know to walk away from the loan and take your business elsewhere. I doubt that this loan falls into that category, because the loan terms are not unbelievably good, but I think this is an competitive fixed-rate loan given your credit history and today's rates.
Loan-to-Value (LTV)
LTV, which is an acronym for “loan to value ratio,” indicates what percentage of your home’s value your new loan will encompass. For example, if you own a home worth $100,000, and you refinance at 80% LTV, your refinance loan will be for $80,000, or 80% of your home's value, leaving you with $20,000 in equity. The higher the LTV of a loan, the more risk a lender is taking in offering you the loan, as the lender stands to lose more money if you default. Because of the higher risk, the higher the interest rate you will likely to pay, which is probably why the lowest interest offer you have received is on the loan with the lowest LTV. Your decision about which loan to take will likely hinge on how much cash you need to pull out of your home, if any, at the time of the refinance. If you need a lot of cash out, you will probably need to go with one of the higher interest, higher LTV loans, as those will offer access to more of your equity. However, if you need little or no cash-out, and are simply looking to obtain a better loan, go with the lowest LTV possible to cover your current loan.
To learn more about refinance loans, I encourage you to visit the Bills.com Refinance Resources page. You can also enter your contact information into the Bills.com Savings center at the top of the page, and I can have several pre-screened brokers contact you to discuss the loan terms they can offer. Finally, spend a few minutes to learn if a no-cost mortgage is right for your situation.
I hope this information helps you Find. Learn & Save.
Best,
Bill
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