If you tried to refinance a few years ago during the real estate boom, you might have waited quite a while for your lender to return your calls. That has changed since the sub-prime bust. Traditional borrowers with good credit, not much debt and some money to put down are the ones that lenders are competing for.
Refinancing has increased as rates have decreased. If you are considering it, you’ll probably get better service, and you might have enough clout to get fees waived or even negotiate a slightly lower interest rate, according to many in the industry. It’s certainly worth a try.
In the crazy days before 2006, 40% of the mortgage business was from sub-prime borrowers, business which has since disappeared. New mortgage lending rules went into effect at the beginning of 2014 that aim to put an end to the worst mortgage lending abuses of the past.
Lenders are left to compete for the traditional borrowers that are left.
Here’s what lenders are looking for:
Solid credit scores. A credit score of 620 is no longer good enough, now lenders like to see 680 or higher on a scale of 850. (Not unusual: 1/2 of consumers have a score of 720 or higher, according to Fair Isaac, creator of the widely used FICO score.)
Must have equity (or cash down). It’s not as easy to borrow the full value of the house. Now the ideal refinancing candidate has at least 20% equity in the home. The loan should be no more than 80% of the home’s newly appraised value.
Good debt-to-income ratio. Lenders look at the size of your monthly debt payments in relation to your income. In the past, debt couldn’t be more than 55% of gross monthly income, now debt needs to be about 42% of income.
The maximum debt-to-income ratio will vary by mortgage lender, loan program, and investor, but thanks to the new Qualified Mortgage rule, most mortgages have a maximum back-end DTI (debt-to-income) ratio of 43%.
Our advice is, before you refinance, do the legwork, talk to 3 local, reputable lenders, compare their rates and costs, look for room to negotiate…after all, you are in the drivers seat!
Contact us for our list of preferred lenders in the Frederick Md, Montgomery County area. Chris Highland 301-401-5119