Refinancing Loan Issues to Consider

A recent report by MSN Money points out a few potential obstacles to getting a home loan refinance. An article at by Marcie Geffner points out that a high loan-to-value (LTV) ratio and debt-to-income ratios that are too high can hurt a borrower’s chances on conventional refinance loans.

What can you do to refinance a conventional loan with a high LTV? Mortgage insurance is one requirement some lenders impose when refinancing a home with a high LTV. As Geffner points out in her article, a high LTV might not get you turned down, but the mortgage insurance is an expense worth budgeting for.

How do you calculate your LTV? As Marcie Geffner writes, “...if you want to borrow $80,000 and your home is worth $100,000, your LTV is $80,000 divided by $100,000 or 80%.”

Another issue that faces some home loan refinancers is a high debt-to-income ratio. Much like when you applied for your first mortgage, some types of refinancing require a new credit check. You should prepare for this credit check much the way you did for the original mortgage. Pay off credit cards, avoid new debt, and be careful to protect your credit score. Checking your credit report and making sure there’s no identity theft, old information or mistakes on the report can be a big help.

These preparations sound complicated to some, while others may say they have been cautious and protective of their credit and debt issues all along. No matter where you may be in the preparation process, these issues are critical--addressing them before you apply for a refinance loan that involves a new appraisal, credit check or other underwriting is a good way to bring you closer to loan approval.

Some refinance loans don’t require additional credit checks. FHA and VA streamline refinance, for example, are designed to help those with existing FHA and VA loans get into lower rates. There is no money back to the borrower, there’s no loan against the equity in the home, etc. That’s why these loans are simpler than those that require new appraisals and underwriting--the borrower is simply getting into a more affordable loan.

Which type of refinance loan is right for you? Talk to a loan officer about your options and possibilities.

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