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In its most simplified terms, a refinance is basically the concept of utilizing the equity (home’s current value minus (-) payoff of all mortgages combined with lending perimeters) and restructuring one’s debt in a better way that many times results in not only peace of mind from reduced bills and stress, but also in the arena’s of monthly savings, reduced overall reduction of interest rate, and shorter payoff time frames.  What does this mean?  To find out just how significant, study this example.  Suppose that you were able to just cut 5 years off your current pace and let’s use a typical monthly house payment of around $800-$1,200 per month.  Only using the $800 X 60 payments (5 yrs) saves $48,000!  What about your math?

            Regardless of your motivation, one thing is constant, the basics of a refinance loan.   There is always 3 distinct things that all banks, lenders, and investors look for when considering any loan regardless of interest rate or program.  Although all are equally important as a whole, the number in order of importance varies with each different program and the requirements that accompanies it.      

One of the determining factors is the borrower’s credit rating.  The rating consists of a credit score given to each borrower, as well as the history of the payment record reported by each of the 3 major credit bureaus:  Equifax, TransUnion, & Experian.  This is the first step that we will take together.  This is one of the most important areas that we will work together.  In some cases, some inaccurate information could be on your credit report that could cost unnecessary financial loss if not addressed.  When is the last time someone went through your credit history and score line by line? 

Another concern is borrower’s ability to pay back the loan.  For example, “Is the borrower very solid in job history with 20 years on the same job or profession or is there frequent changes?   Is the borrower paid by a check taking out taxes and W2’s at the year end or is the borrower self employed are income that we can’t verify?  Is the borrower’s debt load too high for qualification?”  All of these concerns, factor in the approval and cost of restructuring a mortgage loan. 

The collateral of the loan is the backbone.  Since we are not selling our house to someone carrying a suitcase full of money to acquire the needed capital to restructure our debts, we are at the mercy of the market and the values of surrounding houses in our neighborhood.  An appraiser will be sent out to place a “unbiased” value on our home using recent sales in the area that are similar to our house.  If the guy down the street sells his house for a big amount that’s great!  If the opposite occurs, then some “temporary” value concerns must be considered.  The appraised value is critical.  This helps determine the amount of money available to restructure debt and get needed “cash out” for home improvement.  In regard to the above, the better the three weighing factors, the lower the risk and better options for my client.