If you’re looking to refinance your home, it’s important to know the eligibility requirements before initiating the process. Learning this information on the front end can save you a lot of hassle and time, allowing you to streamline your efforts into finding the best rate possible. It can also help you avoid common snags along the way by ensuring that you’ll be an attractive applicant.
Here’s what you need to have:
1. A solid payment history
If your mortgage payment history shows missed payments or late payments, you’re not likely to find another lender who is willing to offer you the opportunity to refinance. This is especially true if your loan has ever been in default. However, a steady and responsible payment history will be a big factor in getting approved. If your plans are to refinance, keep your payments up-to-date for as long as possible.
2. Low debt to income ratio
An applicant’s debt to income ratio (DTI) is the percentage derived from looking at the amount of debt you owe compared to the income you have. If the percentage is higher than 36% (meaning that 36% of your monthly income goes toward paying bills), you’re likely to have a difficult time qualifying for a refinance. For this reason, lowering your debt to income ratio by reducing debt and monthly bills is one
way to fix the problem when applying for a refinance.
3. High credit score
Anyone with a credit score above 700 is likely to be considered a good candidate for a refinance. Having a higher credit score shows your lender that you have a record of paying your bills on time and staying within your credit limits. While the lowest minimum score will change, depending on the type of refinance loan, focusing on keeping your credit score well above those minimums will guarantee you a
good shot at getting approved.