Can I Refinance?

Requirements for a new Loan

A Stroller Moment at the House
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Question: I’d like to find out if I can refinance my mortgage. What does it take to get this done?

Answer: to get a new loan you’ll need to apply for a new loan and qualify with your lender.

Can you Qualify for a Refinance?

Before applying to refinance, it’s a good idea to figure out whether or not you might qualify for the loan. If not, you’ll know sooner than later and you can start fixing any problems.

To qualify for a home loan, you need the following:

  • Decent credit
  • Sufficient income
  • Sufficient equity in the home
First, take a look at your credit. By law, you’re allowed to order free credit reports from each credit reporting agency each year. Look for any errors on those reports. Ideally you don’t have any late payments, and your credit is as good (or better) than it was when you got your original loan. You can refinance with less-than-perfect credit, but you have fewer options.

Next, see if you have enough income to refinance. You probably have an idea of what your new monthly payments would be (if not, use a loan calculator to find out). Make sure your debt to income ratios are sufficient to qualify for the new loan.

Finally, get an idea of your loan to value ratio. Usually, you can refinance without much difficulty if your loan balance is less than 80% of your home’s value. However, your credit and income can always cause problems.

Challenges Refinancing

If you find that you can’t refinance because lenders don’t like your credit, income, or loan to value ratios, try to find a solution. If your credit or income is to blame, consider using a co-signer to qualify for the loan. That person can make lenders more confident about getting repaid.

If your co-signer has strong credit, approval is even more likely.

If you can’t refinance because you don’t have sufficient equity (or your home is under water), investigate government programs. There are several refinance programs designed for homeowners who have fallen on hard times. You can only refinance through these programs if you meet certain criteria, but it’s always worth a try.

In general, government loan programs are your best bet if you can’t refinance with a bank or mortgage broker. These programs have the most generous terms when it comes to credit scores and home equity.

Moving Forward

Ultimately, the only way to find out if you can refinance is to apply for a loan (however, you should familiarize yourself with the topics above before you actually apply). When you’re ready to move forward, contact a lender and start the process. For more detailed instructions, see How to Refinance.