Refinancing Eligibility and Requirements
In a refinance transaction, you essentially pay off
your current mortgage and take out a new one with different
terms that match your refinancing needs. Because refinancing
involves many of the same steps that you followed to
get your current mortgage, you may already know what
to expect. However, you may encounter some additional
steps in the process, so it helps to give some thought
to your personal and financial eligibility and to be
aware of your lender's requirements for the new loan.
Your Personal Situation
To determine if refinancing your mortgage is right
for you, ask yourself a few questions:
* What are my reasons for refinancing?
* How long do I plan to stay in my home?
* How many years remain on my existing mortgage?
* Have I built up equity in my home?
* Can I afford the costs involved?
* Will I save money over the life of my new loan?
With answers to these questions in mind, you will be
better prepared to discuss your refinancing needs with
your lender or mortgage broker. Your Financial Eligibility
and Other Lender Requirements To be eligible to refinance
a mortgage, lenders usually require that you have at
least 5 percent equity accumulated in your property.
Equity is the difference between what your property
is worth and the amount you still owe on your mortgage.
For example, if your house is valued at $100,000, and
your mortgage balance is $90,000, you have $10,000 (or
10 percent) equity in your home. As with the traditional
mortgage process, your lender will require you to complete
a loan application. The loan application helps the lender
assess your financial situation, credit history, the
property value, the amount of equity in your home, and
other data.
To process your loan application, your lender typically
will require:
* Verification of employment and income;
* Information about debts and assets;
* Account numbers and balances for savings, checking,
and other financial accounts;
* A title search of the property;
* A copy of the site survey;
* An appraisal (in some cases, an exterior-only appraisal);
and
* A copy of your hazard insurance policy.
Your lender also will require information about your
present mortgage, including:
* Your current monthly payment,
* The outstanding mortgage balance,
* The status of your property tax and insurance payments,
and
* The mortgage lender's contract information (if you're
not refinancing through your original lender).
Streamlining the Process Lenders that use an automated
underwriting system may be able to provide you with
a speedier refinance process with reduced paperwork.
An automated underwriting system often allows a lender
to provide you with a loan approval decision in minutes
by requiring fewer pieces of information from you at
the time of loan application and, in some cases, eliminating
the need for a full appraisal of your home (using an
exterior-only inspection or a property inspection report).
For information and educational purposes only. | 
