Refinancing requires income, credit and sometimes equity to support a new mortgage or deed of trust. If your current income cannot pay your present mortgage, it may be difficult to convince another lender to offer you a loan with a reasonable interest rate. Based upon the tightening of qualifying criteria for loan applications, refinancing in today's market is becoming less and less of a viable option. It goes without saying that the only reason to refinance is to lower your monthly payment.
There are several things to consider before deciding to refinance:
1. You will usually pay origination fees or "points" to the mortgage broker or bank providing the new loan.
2. You may have a prepayment penalty on your current loan which could increase your costs.
3. You will incur other closing costs for the refinance (application, processing, appraisal, title & escrow fees, etc)
4. If your FICO score has dropped or is low, your interest rate will often be higher resulting in a higher monthly payment.
5. Will your home appraise for the amount you are looking to refinance? This is a big challenge in today's market because of falling property values nationwide. No lender will approve a refinance if the appraisal (value) is not equal to or greater than the loan amount.
You can hire your own independent appraisal to be performed for $300 to $500 OR get a free Competitive Market Analysis from local licensed RealtorŪ. Based upon these valuations, if equity exists, you can start shopping for new financing. If you choose not to refinance, this information can still be useful down the road.
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The information contained in this report is deemed to be accurate but is not guaranteed.
Sources: "The Foreclosure Bible" and the California Association of RealtorsŪ