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Refinance Three Mortgages

I have three mortgages on two properties. Is now a good time to refinance my mortgages?

We have two mortgages and a home equity loan. One has a balance of $52,000 and the other $239,000. Home equity is $90,000. We have been able to make all the payment for the last three years. Cannot sell smaller house and at tax time it has been quite stressful. Can not hold on to good renters. All three notes are from same lender. What do you think they would say about helping us with some sort refinance or consolidation?

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Bill's Answer
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Bills.com | Find Learn Save
Highlights

  • Take advantage of today's historically low refinance interest rates.
  • Start shopping for a home mortgage at the Bills savings center.
  • Complete a Form 1003 to start the home mortgage shopping process.

Editor’s Note: The answer below was written in mid-2010. Mortgage interest rates are even lower today. Therefore, even though the numbers quoted are inaccurate as of 2012, the overall theme of Bill’s answer is correct.

Now is an excellent time to refinance a mortgage by any historical standard. As I write this in August 2010, interest rates available to people with good to excellent credit are at rates I never imagined I would see. For example, a person with excellent credit can find a mortgage or refinance with fixed interest rates that range from 4.5% to 4.625%, which are rates unavailable even six months ago. For people with a credit rating below 680, typical rates today range from 4.875% to 5%.

A detailed analysis of your situation is impossible because you did not include vital information in your message. You did not mention the value of either property, the terms of your loans, or the ages of your loans. Therefore, my answer will consist of general rules of thumb loan officers use when assessing the viability of a refinance for a client.

It is the case, however, that lenders do not usually combine loans on separate properties. You will need to look at refinancing each property's loan separately.

If you are ready to start shopping for a refinance now, go to the Bills.com mortgage refinance saving center to receive no-cost quotes from up to five pre-screened mortgage lenders.

Shopping for a Loan

Here are some things you need to be aware of when shopping for a mortgage or refinance.

Debt to Income Ratio

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.

Two Years Work Experience

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.

You mentioned one of your properties is a rental unit. The lender will want to see your tax returns to gauge the cash flow you see from the rental.

Loan to Value

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.

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.

Next Steps

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

This is written in mid 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%. If the value of the properties in your neighborhood have held steady the last 12 months, you may be in a situation where the appraised value on your property may be the same as it was when you purchased it.

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 the last 12 months. 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.

Best,

Bill

Bills.com

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