Our current mortgage balance is around $200,000, we have about 15 years left to pay on a 20-year mortgage at 5%. We have almost $23,000 in credit card debt. We are considering refinancing, should we go for another 20-year mortgage so we are able to pay more towards our credit cards or go with a 15 year. How do I find the best lender if we do refinance?
Your question is challenging for several reasons. You do not mention your income or credit histories, your debt-to-income (DTI) ratio, or the loan-to-value (LTV) ratio on the property.
Here are four things you need to be aware of when shopping for a mortgage or refinance.
An important factor in qualifying for a mortgage or refinance is your debt-to-income ratio, which is called DTI in the trade. Your DTI is calculated by dividing your total income by certain debts you have, such as your principal and interest mortgage payment, property taxes, and homeowners insurance (PITI); any credit card or unsecured debt payments; student loan payments, and any vehicle payments. If the monthly payments for those debts take up more than 45% of your income, you will not qualify for a loan. See DTI: Debt-to-Income Ratio Information to learn more about calculating your debt-to-income ratio.
In general, lenders require that anyone on the loan has two been at the same job or working in the same industry for the past two years to have that income included in the qualifying income for a loan.
Your loan-to-value (LTV) is another important component for qualifying for a loan. Your LTV is calculated by taking the current market value of your home (what you can sell it for in today’s market) and dividing it by the balance on your mortgage or mortgages. Do not use the value that the property tax assessor has assigned to your property, as it does not necessarily reflect the price you would get if you were to sell your home today. The higher the LTV, the harder it is to refinance. Some lenders will not refinance a loan if your LTV is above 90%, others even lower. There are some loans available through what is called Refi Plus that go up to 105% of your LTV, if your loan is serviced by Fannie Mae or Freddie Mac. You can find information here about the Refi Plus program.
Lenders use your credit score as an important factor in determining if you will qualify for a mortgage and if so, whether you will qualify for the lowest rates available. Everyone should keep track of his/her credit score, because it will have an effect on home loans, car loans, chances to get personal loans or credit cards, landlords for judging the suitability of a prospective tenant, and even can be used by employers in evaluating job-seekers. If you check your credit score now, you can see where it is now and work on building your score, if necessary, in case refinancing or purchasing another home is something you want to do in the future. For general information about credit, please review the information you will find at the Bills.com credit resources page.
This is written in late 2010. The last three years have been brutal for housing values across the US. Some areas have seen market values fall 50%, where other areas have dipped 15%. What is the market value of your home today? How much equity do you have in your home? Is your LTV less than 80%?
An appraisal is necessary for a mortgage or a refinance to determine the market value of the property. An appraisal usually costs $350. For an unofficial estimate of your property’s value, go to Zillow.com. Ignore the assessed value your county assigned your home for property tax purposes.
If you have sufficient equity, in other words a low LTV, then you can consider a cash-out refinance. Your question regarding a 15-year or 20-year loan can be answered once you determine if you have equity, and you learn the monthly payments for a 15- and 20-year loan.
You will qualify for a home mortgage refinance loan if you have a steady, adequate income, your DTI is 35% or less, and the market values in your neighborhood have held steady. Download a Uniform Residential Loan Application (Form 1003), complete it, and start your home mortgage refinance shopping. Then, go to the Bills.com mortgage refinance saving center for no-cost, pre-screened quotes from home mortgage refinance lenders.
I hope this information helps you Find. Learn & Save.