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.