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Refinancing: Beware of These 3 Pitfalls

Know Mortgage | Refinancing: Beware of These 3 Pitfalls

When it comes time to refinancing, don't let these pitfalls set you back. Watch out for overly aggressive pricing and erroneous DTI evaluations. Is there a forbearance on your current loan? Once those obstacles have been taken care of, refinancing your home should be smooth sailing.

Home Value Estimates

Don't over estimate the value of your home! We have seen too many loans fall apart due to borrowers and even loan officers over estimating the value of the homes being refinanced.  The reason why this is so crucial? 

Loan To Value (LTV) plays a big part in the pricing and structure of your loan.  If the loan is hinging on having a certain amount of equity and the appraised value comes in low you will have a very unhappy situation on your hands. The most common dissapointment is that your lender may have to increase the rate or fees due to LTV thresholds not being met.  In worst cases the loan can be denied approval!

Debt to Income Ratio When Refinancing

Your Debt to Income Ratio is calculated using your gross income. It doesn't take into account tax payments and other deductions. Also, DTI refers to the amount of your gross income that goes toward paying monthly debt payments.

Mortgage lenders use this information when deciding whether a client is qualified for a loan. A Debt to Income Ratio of 50% is the highest that many lenders will accept. Some lenders are more conservative and will disqualify clients with DTIs higher than 43%.

Loan Officers are not perfect and miscalculated DTI Ratio is one of the most common reasons loans approvals fall apart and the sad thing is, often Lenders will not notify you of this until sometimes weeks into the loan process. 

Loan Forbearance and Refinancing

A forbearance on your loan will simply defer it. The amount is not forgiven. You are responsible for the entire original amount of the loan but are simply given some leeway during turbulent times. If you are currently in a Loan Forbearance, you will need to pay all your missed payments back and get fully caught up before any Lender will consider approving you for a loan. 

Loan Forbearance is a very tempting option to take during these times even if you don't necessarily need it. But if you don't necessairly need it and you would like to take advantage of any refinance options then we highly recommend against doing a Loan Forbearance.

At Know Mortgage, you can get connected to a Loan Agent who can give you helpful advice.  Just click on the "Speak to A Loan Agent" tab and a helpful Loan Expert will reach out within 24-48 hours.

Details

  • DID YOU KNOW:

    Only close family and relatives, such as aunts and uncles can “gift” you money for a down payment.

  • DID YOU KNOW:

    The failure rate for a home purchase is 20% on average.

  • DID YOU KNOW:

    Many lenders have NO PMI loans, even if you have a down payment of less than 20%.

  • DID YOU KNOW:

    Veterans may qualify for a home purchase with no down payment using a VA Loan for purchase.

  • DID YOU KNOW:

    Many condominiums are not FHA approved and therefore you will not be able to purchase the condo with an FHA Loan.

  • DID YOU KNOW:

    FHA Loans give you greater flexibility with your debt to income ratio. In short, you can qualify for more loan with less income.

  • DID YOU KNOW:

    Student loans can throw your debt to income ratio out of whack and disqualify you from approval due to excessive debt.

  • DID YOU KNOW:

    Bankruptcy does not disqualify you from getting an FHA Loan as long as it has been 2 years since the recorded discharge date, or 4 years for a Conventional Loan.

  • DID YOU KNOW:

    Many lenders will not accept documents, such as bank statements, that have any portion that has been blacked out or tampered with.

  • PRO TIP:

    Be sure to understand exactly how much loan you can be approved for before you fall in love with a home and get into a contract!

  • PRO TIP:

    Don’t move around assets during the processing of your home purchase loan, as it will trigger the underwriters to ask repeatedly for updated bank statements.

  • PRO TIP:

    Not every Realtor can produce the same results, so be sure to check their credentials and experience.

  • PRO TIP:

    Don’t just trust a pre-qualification from a licensed lending officer. Get pre-approved by an actual underwriter before you get into a home purchase contract.

Speak with a loan agent now!