Getting Qualified

getting yourself qualified for home refinancing

Lenders use several criteria to qualify you for refinancing. The most important criteria include: 1) the home appraisal; 2) your credit rating; 3) your capacity to repay (income ratios); and 4) your employment.

Below is summary of four (4) quick qualifying factors for home refinancing:

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getting qualified for refinancing

Home Value

Since the mortgage loan amount is secured by the equity value of your home, lenders will use the home value to determine how much loan amount to refinance. The value of the home should be greater than the debt amount that will be refinanced. If the debt amount is greater then the home value, you may not qualify.

Lenders will complete a market valuation or a complete home appraisal before they qualify any mortgage loan amount. The appraisal must be comparable with similar homes in the surrounding neighborhood.

view home market valuations

getting qualified for refinancing

Your Credit Rating

Your credit report is used by banks and other lending institutions to determine your credit worthiness. The report lists any payment delinquencies that you may have had over the past three years.

The report can be a factor in a lending institution's decision to approve or decline your mortgage application. You should review your credit report for any errors before applying for a refi.

You need a credit history of at least one year to ensure a good credit report.

A credit score determines the rate the lender may charge you. The credit score estimates your ability to repay a loan as evidenced by your credit history. Lenders will sometimes give you a better rate based on a good credit report.

view our credit management module for more information

getting qualified for refinancing

Your Capacity to Repay

Your capacity to repay your refi loan is an important factor for lending institutions to qualify an applicant for a loan. If capacity ratios are too high, you will need to change one of the following parameters in order to qualify:

  • reduce your borrowed requests
  • increase your income
  • pay off outstanding debts

Lenders use two ratios

  1. The "housing ratio":
    calculated by dividing monthly housing expenses by your gross monthly income. As a basic rule, the housing ratio should not exceed 28%.
  2. The "debt-to-income ratio":
    calculated by dividing your fixed monthly expenses by your gross monthly income. As a basic rule, debt ratio should not exceed 36%.

calculate these ratios

getting qualified for a mortgage

Employment

Your capacity to repay the loan is contingent on your employment and other income sources. Lenders like to see applicants in steady jobs with verifiable income.

Lenders will likely call your employer to verify your employment position and salary/wages. Any discrepancy in your reported employment and income may raise additional questions that can disqualify you for a loan.

For Self-Employed

Self-employed individuals will need to provide additional documents to ensure lenders that the applicant has steady income. These documents will include your personal tax filings and other information as required.