How to Qualify for Refinancing
- 1). Get a copies of your credit reports and credit score. This can be done online through AnnualCreditReport.com. You will be asked for your full legal name, social security number, date of birth and credit card information. The credit report will be free; obtaining your credit score will cost between $30 and $40.
- 2). Analyze your credit report. Report any errors immediately to the credit bureau through the same service from which you ordered the report. If there are any 30-, 60- or 90-day late pays on your current mortgage, you will not be able to refinance until a year has passed from your last 30-day late payment, two years from your last 60-day late payment and 3 years from your last 90-day late payment.
If any liens or judgments, even if not attached to the property itself, exist on your credit report, they will have to be paid in full prior to closing on the refinance of the mortgage. - 3). Find your credit score. If your score is above 620, you should be able to qualify for a conventional loan. If your credit score is 580 or above, you should be able to qualify for a FHA loan. For credit scores below 580, sub-prime financing will be your only option.
- 4). Calculate your yearly income. Divide the total income found on your W-2 form by 12 to get your monthly income. If you are self-employed, average two years' net income (as listed on your tax returns) and divide that number by 12 to find your monthly income.
- 5). Total your monthly debt payments as listed on your credit report. Divide that number into your monthly income. This is your debt-to-income ratio. If the ration falls below 50 percent, you should qualify for refinancing your mortgage.
- 6). Check house values in your area. Look for houses listed for sale within a mile of your home that are similar in size and age, and find an average value. A lender will get an appraisal on your home that is much more complicated than that basic search. However, your research will give you an idea of your home's approximate value. Divide the amount you owe on your mortgage (or the amount of the refinance, if higher) into the approximate value of the home. This gives you the loan-to-value ratio. If the loan to value is 96.5 percent or less, you should be able to refinance your home.
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