Mortgage rates in the country are now at historical low levels. This has opened up huge opportunities for refinancing. In other words, replacing your original loan with a new one has become very lucrative. Despite the opportunities, many of you have not been able to take the advantage of refinancing. Here we describe the reasons behind it.
1. Not so good credit score
One important condition to replace a loan with better terms is to have a good credit score. Unless you have a very good credit score, your chance of getting approved for refinancing is significantly diminished. Generally, credit score of at least 720 is required.
2. May not be affordable
Refinancing is just like taking out a new loan. All the costs such as closing cost, appraisal fees, discount points etc. are also associated with this offer. Generally, fees are around 2% of the loan amount. So, you need to ensure that this offer is affordable to you. You can also take the help of a home affordability calculator so as to know whether or not it is affordable to you.
3. Not having adequate equity
One important criterion to become eligible for this offer is to have sufficient equity in your home. But, in the aftermath of the financial crisis, home prices have declined appreciably leading to loss of equity. Many homeowners have not yet been able to regain sufficient equity in their homes. This has somewhat limited the scope of refinancing.
4. Adverse debt to income ratio
Another important precondition to obtain this mortgage offer is to have a good debt to income ratio. If you have a very high debt to income ratio, your chances are severely reduced. Make sure that you have a low debt to income ratio before applying for this offer.
5. You may be thinking that you are too old
Because of your old age, sometimes you may be thinking that you are not the right candidate for this offer. You may be on the verge of retirement or you may have already retired. At this stage, you may be under the impression that refinance would not be a wise option for you. However, you need to remember that the decision to replace a home loan should depend on specific individual situation and not only on age.
6. Low income to qualify
You may be thinking that your income is too low to qualify for this offer. It may be because of the fact that for some reasons, you have joined a low-paying job. Anyways, what is more important is continuous work records and being current on payments. So, even if you are earning less, you can try it out in case you fulfill other conditions.
7. Inability to provide documents
Like taking out a new loan, in refinancing also, you are required to furnish necessary documents. These documents may include your pay stubs, bank account statements, asset statements, tax returns etc. If you are not able to furnish these documents, you may not be approved the loan.
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