What You Need To Know About Refinancing

Lending standards are different now, but if you can meet the requirements, most banks will gladly refinance your mortgage. The three basic criteria are:

• Your debt-to-income ratio, or DTI. Mortgage lenders want your DTI to be less than 45%.
• Your loan-to-value ratio, or LTV. Most lenders want it to be less than 80%— meaning the total amount you owe on your house should be no more than 80% of what the house is worth. (For example, if your house is worth $400,000, they will not refinance a mortgage of more than $320,000.)
• Your credit score. You’ll generally need a FICO score of at least 580 depending on your situation. However, I always say the higher the credit score the better to get the best interest rates.

When you compare mortgages, you will need to take note of the annual percentage rate (APR), whether the lender is charging you “points” up front, and what the closing costs will be (including fees for appraisals, title search, title insurance, credit reports, etc.).

Refinancing only makes sense if the savings you enjoy from lower interest payments more than cover the cost of closing the new mortgage. If you are going to be in your home for more than another three years, you’ll generally come out ahead as long as your new interest rate is at least one full percentage point lower than what you are currently paying. You can always reach out to me directly to see if refinancing is the best option for you.

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