Is Mortgage Refinancing Right for You?

Are you considering refinancing your mortgage? It's a great way to save money and lower your monthly payments, but it's important to make sure you're eligible before you apply. Here's what you need to know about mortgage refinancing eligibility. A general rule of thumb is that you must have at least 20% equity in your home if you want to refinance. This figure is usually the amount of capital you'll need if you also want to refinance with cash disbursement. If you want to get rid of private mortgage insurance, you'll likely need 20% of your home's equity. When applying to refinance your mortgage, lenders first consider credit scores.

Every loan program has a minimum credit score requirement, but lenders also examine your credit history. For example, most lenders won't approve your refinance request if you have a history of late or unpaid mortgage payments. As with a conventional cash-out refinance, with an FHA cash-out refinance, your new loan is for more than what you currently owe on your mortgage, allowing you to pay the difference in cash. To qualify, you must own the home and occupy it as your primary residence for at least 12 months before applying for a cash-out refinance. You can refinance a home you own with cash out for free if you have a mortgage and have had it for at least six months. All mortgage payments due in the last 12 months must have been made on time. While lenders usually allow homeowners to borrow up to 80 percent of the value of the home, the limit can vary depending on their credit rating and the type of mortgage, as well as the type of property associated with the loan (for example, a single-family, duplex, or three- or four-unit property).As you explore your options, take note of each lender's cash withdrawal requirements.

Most require a credit score of at least 620, a DTI index of less than 43 percent, and at least 20% equity in your home.

April Mifsud
April Mifsud

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