Refinance Your Way To A Better Future

Refinance Requirements And Benefits

Refinancing your mortgage offers a wide range of benefits and opportunities. It’s essential that you understand the basic requirements lenders have. Factors such as the property type, credit score, and equity all play a role in the underwriter’s decision to approve your loan. Knowing the requirements ahead of time will help lead to a more efficient process and put you in a better position to lock in a lower rate.

Below, you’ll find a quick snapshot of the basic requirements every California homeowner should know and the potential long-term benefits of refinancing their current mortgage.

Underwriting Requirements You Should Know

Here are the four basic refinance requirements an underwriter will look for when they review your application and documentation.

• Equity in the home (unless it’s a California FHA or VA refinance)
• It must be a residential property with fewer than four units
• A middle credit score of 580 or higher (some late mortgage payments might be allowed)
• A debt-to-income ratio of 50% or less (total of your debts compared to your income.

You must meet additional requirements before an underwriter approves your loan application; however, these are the three most essential requirements. Additional requirements include a stable source of income and a net tangible benefit to you, the homeowner.

A Homeowner’s Long-Term Financial Benefits

A refinance of your current mortgage can have significant financial benefits. It can allow you to change your current financial path by putting you into a better mortgage that fits your needs. Here is a list of benefits homeowners in California might receive.

• A lower rate to reduce your total interest paid
• Consolidation of high-interest debt into a new mortgage
• Home Improvements that will increase the value of the home
• Locking in a shorter term to reduce the amount of interest you pay
• Getting rid of Private Mortgage Insurance or FHA Mortgage Insurance
• Moving from an adjustable rate to a fixed rate to secure a more stable payment plan

Locking in a lower mortgage rate is one of the main reasons a homeowner would want to consider changing their current terms. If this is your only goal, you’ll want to lower your interest rate by 0.50% or more (if there are no other benefits, such as cash-out or a shorter term).

You’ll also want to evaluate the cost involved, as that might impact your decision and require rates to move even lower before you decide to change your loan.

Paying off high-interest debt and home improvement projects are two major reasons homeowners refinance. California homeowners should know that interest rates for a new mortgage are generally much lower than those for unsecured high-interest credit card debt; sometimes, the savings are thousands of dollars annually.

As for home improvement projects, who wouldn’t want a new kitchen or bathroom? Using a cash-out refinancing loan to remodel your home is a great way to add value to your house.

Locking in a shorter term and eliminating FHA Mortgage Insurance (MI) or Private Mortgage Insurance(PMI) is a common reason homeowners in California evaluate their options to change the terms of their mortgage.

Moving from an adjustable to a fixed rate provides security and certainty that your rate and payment will never change.