Requirements for mortgage refinancing: what are they?

Requirements for mortgage refinancing: what are they?

Refinancing your mortgage replaces your existing loan with one having different terms. The US Federal Reserve says that refinancing is a lengthy and expensive process, but if interest rates are lower than they were when you got your original loan, a refinance can save you a lot of money in the long run. Here are some of the requirements you will need to meet in order to qualify for a refinance.

You must have a certain level of assets. When determining if a homeowner is eligible for a refinance, lenders first look at their current assets. Just as when you got your original loan, a refinance requires a certain level of assets in your home to protect the lender’s interest in the event of a default. Assets include other properties, a substantial amount of home equity, or a savings account.

You must have a good credit score. Every lender’s requirements are different, but all require that potential borrowers have a good credit score because lending to those with lower scores represents an increased liability. If your score has risen since you got your original loan, you might get a better interest rate, and if it has declined, your interest rate will almost certainly rise.

You must have a good loan/value ratio. Again, requirements vary from lender to lender, but all require a specific ratio in order to get refinanced. Loan to value ratio is calculated by dividing the amount requested by the worth of the property.
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Requirements for FHA loans are different. These loans are backed by the FHA (Federal Housing Administration), and their refinance requirements are different. HUD stipulates that a streamline refinance (one without the closing costs associated with the original loan) can only be done if the homeowner is current on their mortgage and has sufficient equity in the home.

The US government sponsors a Making Homes Affordable program, which allows borrowers to get refinanced when they’ve been denied through traditional means due to low equity. According to the program, the home must have 1-4 units and the homeowner has to be current on their mortgage payment.