If you want to refinance your home, your credit score and the value of your home will be the two most important pieces of information. Other important information you will need to gather will include pay stubs, bank statements, tax returns, and an itemized listing of all of your other financial obligations. If you are self employed, you will need even more information to verify your income and business expenses.
Once you have gathered this information, the process should take between 30 and 90 days to complete.
Here are some important things to understand:
Home equity is the difference in the value of your home and the amount you owe. To quality for a re-financing loan, most banks will be looking or you to have at least a 20% equity stake in your home. For example, if your house is worth $300,000, the bank would want you to owe no more than $240,000.
If your equity stake is less than 80%, you may still qualify, but is less likely.
The bank will also need to determine what your home is worth. To do this, they will hire an appraiser to determine your home's value. The appraiser will visit our home, accessing its qualities, and then compare it to other similar homes in the area that have sold recently.
Your credit score is also a major consideration that your bank will consider. To get the lowest rate possible, you need to have a good credit rating.
There are a ton of different credit scores out there, but most banks look at your FICO score. The FICO score was developed by Fair Isaac Corp and is widely considered the industry standard. Your FICO score is based on an 850 point scale. If your FICO score is above 740, you will most likely qualify for the lowest interest rate. If your FICO score is between 620 and 740 you will pay slightly more and if your FICO score is below 620 you may have trouble qualifying.
I receive emails everyday asking me if I want to receive a FREE CREDIT Report. Unfortunately, very few of these are based on my FICO score. These services can be very useful in helping you get the lowest rate possible, but only if they are based on your FICO score. Make sure they are before joining.
Now, what if your FICO score is a little less than what you would like it and you don't have an 80% or greater equity stake in your home, should you still try to refinance?
The answer to that question is YES.
If the current rates are low enough, it can not hurt to look around. If you don't qualify, you don't qualify, but you will never know until you ask. You won't be paying any more than you are today and you might be able to really lower your rate. If you don't quality, try picking up the phone and calling your current mortgage holder. Tell them you are thinking about refinancing with someone else. Quite often they will reduce your current rate on the spot.
