How do I qualify for refinance mortgage? It is now more challenging to become eligible for one as lenders have made guidelines stringent for evaluating loan applications. Let us look at what lenders look for while going through refinance applications1. Debt to Income ratio:
Lenders consider your monthly earnings and debt payments by way of a debt-to-income (DTI) ratio. Lenders usually look for a debt to income ratio that does no exceed 38 percent. However, there are some programs that allow more flexibility and make way for a larger debt to income ratio.To calculate debt-to-income ratio for a refinance application, you should consider your income, housing costs and debts. These are the factors that lenders often look to find out if you are eligible for mortgage refinance. If you have a high debt-to-income ratio, you may focus on clearing some of your debts before refinancing.Also bear in mind that that most lenders will need that you have proof of income in the form of the latest paycheck stubs, w-2 forums or federal income tax returns.2. Loan to Value Ratio:
Another factor that comes into play to find out if you can qualify for mortgage refinance is finding the loan to value ratio. To calculate this, divide the amount that you want to borrow by the present value of your home. For instance, if the value of your home is $200,000 and you want to borrow $160,000, your LTV is 80 percent. In fact, most lenders look for loan to value ratio that is lesser than 80 percent for refinance mortgage. However, there are some lenders that offer flexible termsA good example to illustrate better Loan to Value Ratio is the Making Home Affordable Program, which makes for refinancing up to 105 percent LTV. This program is for borrowers who have a good track record of making mortgage payments on time and whose loan is backed or owned by Fannie Mae or Freddie Mac.3. Your credit score:
The credit score also has a bearing on your ability to be eligible for refinance mortgage. While, there is no particular minimum credit score needed for refinancing, it goes without saying that if the credit is not good, the interest rate and terms offered may not make refinance viable enough. So, pay your bill on time, get a good credit score, and the qualification for refinance mortgage also increases.