What Refinance Lenders Want in an Application

What Refinance Lenders Want in an Application
  • Weigh whether or not refinancing makes sense.
  • Examine four quick tips about the factors that refinance lenders consider.
  • Evaluate the full cost of the refinance.

Learn the 4 Key Questions Refinance Lenders Want Answered in Your Refinance Application

Millions of American families ask every year, "should I refinance my mortgage loan?" and "how do I get the best mortgage loan refinance?" Before kicking off the refinance loan process, you need to decide if your situation is right, if the market is is right for refinancing and if you are refinancing for the right reasons. It is also important to locate a refinance lender who will work with you as your lending partner to meet all of your home refinance needs and assist you when you are asking “ how much to refinance my mortgage loan?”

That is where we come in! Bills.com has created the tools, tips, refinance calculators, advice and matching engine to empower you and to help you find the best refinance loan for your needs. With Bills.com, you will find everything you need to make the right home refinancing decisions. You can research the best rates for your home refinance; find answers to your many refinancing questions; and even find lenders who will ensure your home refinance is quick, painless, and successful. So if you are having trouble finding the answer to "Should I refinance my mortgage?" or are looking for the best lender possible, then turn to Bills.com and use our tools to arm yourself and get you all set to refinance your mortgage loan.

Quick tip #1

if you are ready to start shopping for a refinance now, contact one of bills.com’s pre-screened refinance partners for a free, no-hassle mortgage quote.

4 Key Questions Refinance Lenders Want Answered

When shopping for a mortgage or refinance, here are the four things lenders focus on in your mortgage or refinance application:

1. What is Your Debt-to-Income Ratio?

An important factor in qualifying for a mortgage or refinance is your debt-to-income ratio (DTI). 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.

2. Do you have Two Years Work Experience in Your Field?

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, in order to have that income included in the income the lender accepts to qualify a borrower for a loan.

3. What is the Loan-to-Value on Your Home?

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 for borrower with limited equity or who are underwater on their homes. Both the VA and FHA offer streamlined refinancing that is not dependent on your LTV, if you currently have a VA or FHA Loan. As of mid-November 2011, the new HARP program has no LTV cap, as long as your loan is owned or insured by Fannie Mae or Freddie Mac.

4. What is Your Credit Score?

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.

Evaluate the Full Cost of Your Loan Proposals

Understanding whether a refinance is right for you is a good first step. Then learning the basics of how to qualify for a mortgage and what lenders consider will help you to determine if indeed you can get a new mortgage. Next, and before you make the full leap in to shopping for a mortgage, make sure you understand the full costs of refinancing. Here are the three most important questions you need to answer:

1. What is the Interest Rate?

The amount of interest that you pay over the life of the loan will be determined by the loan amount, the term and of course, the interest rate. Regardless of whether you get a fixed or adjustable rate, you will pay some interest back to the lender for borrowing the money. Interest is paid with each of your payments, and importantly, you pay a much higher percentage of your total interest at the beginning of your term, than at the end. So keep in mind if you refinance quickly, that you are paying down very little principal.

2. How Much are the Closing Fees?

These will be charged anytime you get a new loan. These will include principally, lender and broker fees, discount points, prepaid fees (interest and some transaction taxes), third-party fees like appraisals and inspections and title fees.

3. Does the Loan Have Prepayment Penalties?

Recently, prepayment penalties have been less common, though on some loans they are still a feature. This might mean that you may pay a penalty if you pay your loan off early.

The shorter the loan term, the less total interest you will pay over the life of the loan. If you want to pay your loan down and build equity quickly, a short mortgage term may be for you.

Good luck. Now you are armed with some answers when you ask yourself, “Should I refinance my mortgage?”

Easiest Way to Get an Answer

So what now? You have asked yourself all of the right questions and have gotten your answers. What to do next? Try the Bills.com Mortgage Calculator or get a Bills.com Quick Quote and find great mortgage lenders ready with rate quotes on the best loans for your situation.