Do you qualify to refinance your mortgage?

Posted by  on Dec 20, 2010

The best mortgage rates keep getting better. But you may have avoided getting mortgage quotes and applying to refinance because you have doubts about qualifying. The news is full of stories about how much harder it is to get approved for a home loan, and the economy may have exacted a toll on your credit score too. How do you know if you should take a shot at refinancing your mortgage?

First, check your equity position.

The biggest obstacle to refinancing for many is their home's value (note: if you have an FHA or VA mortgage, you can streamline your refi with no appraisal). If you live in an area with declining home values, you may be doubtful of your ability to refinance.

However, before spending hundreds for an appraisal, check out Realtor.com (you can order a report on home values in your neighborhood), Yahoo Real Estate (for a list of recent sales in your neighborhood of homes similar to yours), and your county assessor's office, which can show you assessed values in your area.

These sources won't give you an exact value, but they can show you trends in your area and give you a range of likely values for your home. Keep in mind they will not be able to incorporate improvements or damage to your property value -- you'll have to do some estimating yourself.

Next, verify your credit scores.

The next factor in your refinance eligibility is your credit rating. Your scores not only determine if you get a mortgage approval, but they also influence your refinance mortgage quote. Mortgage costs are mostly determined by your loan-to-value and credit rating. You can get a free credit report with no strings attached from www.annualcreditreport.com, and you can purchase your scores for a nominal charge.

Finally compare mortgage rates.

Get mortgage quotes from several lenders (Shoprate.com makes it easy). You may also want to compare FHA rates versus conventional mortgage rates, especially if you have less than 20 percent home equity and will need mortgage insurance. Make sure that lenders all get your credit score and home value information so that you get valid mortgage quotes. Request a Good Faith Estimate, which puts your quote in writing and obligates the lender to honor it.

If you have doubts....

If you have doubts about getting approved, ask that the lender underwrite your application (credit, income, and assets) and grant you credit approval before ordering a home appraisal. That way you aren't out the appraisal fee if your credit doesn't pass muster. Do not allow lenders to pull credit reports until you have chosen one. Too many inquiries over too long a time period can drop your credit score, and that can cost you.


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