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Refinancing Mortgage Loan Could Give You Cash to Pay Bills

Posted by  on Oct 08, 2009
 

If you're looking for extra money, refinancing to cash out some of your home equity could help. But with mortgage lenders toughening up requirements, not everyone will qualify to do this. It's important to know what you can do to improve your chance of qualifying for a home refinance to get the cash you need.

Improving Credit Scores

In many cases, mortgage loan applicants need a minimum score of 740 to refinance home loans at the best mortgage rates. A mortgage broker can help figure out what kind of mortgage financing you qualify for with your current credit score. You may find that you need to improve your score by focusing on paying down debts or making monthly bill payments on time.

Get a copy of your credit report to make sure there are no errors. Information that is reported incorrectly can negatively impact your credit score. If you need to make corrections, contact the credit reporting agency in writing. It's best to check your credit report periodically (once or twice a year) to clear up problems and avoid identity theft. FICO scores are based on several things:

  1. Payment history accounts for 35% of your score
  2. Amounts owed is 30%
  3. Length of credit history is 15%
  4. New credit is 10%
  5. Types of credit used is 10%

Getting an Accurate Property Appraisal

Who hasn't lost some home equity during this recession? You're probably in the same boat as many Americans who've watched their home values drop. The Federal Reserve estimates that U.S. homeowners have lost 40% of their home equity due to the housing market's problems. The total market value of U.S. homes has fallen $4 trillion to $17.9 trillion. Hopefully you still have some to bring to the table when you refinance.

Under the new Home Valuation Code of Conduct (HVCC), neither you nor your loan agent gets to pick your appraiser. It's done through appraisal management companies to separate the appraisal process from anyone who stands to benefit from the refinance, and you don't always end up with the best appraiser or someone who knows your neighborhood. Here are some things you can do to get the best appraisal for a mortgage refinance when working with a lender:

  1. Research home values in your area and find out if there have been many foreclosures, which drives down home values.
  2. Check online sites which provide approximate values for any address.
  3. Complete major repairs and upgrades before having the appraisal.
  4. If you've added any square footage to your home, make sure the appraisal accurately reflects that.
  5. If you don't agree with the valuation, you can ask for another appraisal, an appraisal review, or go with another lender (you'll have to pay for an additional appraisal though).

Providing Documentation of Income

If you have a job, you can provide copies of recent pay stubs to prove your income. But if you are self-employed, mortgage lenders ask for more documentation of income. They usually want to see two years of tax returns, a profit and loss statement, and investment and bank account statements. The mortgage lender also wants to know the payoff amount of your current mortgage loan. Ask for a list of the documents needed when getting mortgage quotes.

Do You Really Need to Cash Out Home Equity?

Refinancing your mortgage loan can lower your mortgage rate and monthly payments. But do you really need to cash out some of your home equity? If you have other sources of income it may be better to retain as much equity as you can since there is no guarantee of what will happen with housing values. You don't want to be in the position of tapping home equity now, only to end up owing more on your property than it is worth if housing values continue falling.

Summary

Refinancing your home loan can allow you to cash out some of your home equity. Mortgage lenders are requiring borrowers to have high credit scores to qualify for the best mortgage rates. Get a copy of your credit report so you'll know what areas need improvement to help you qualify for a home refinance. Getting an accurate appraisal is important to get approved for refinancing. Find out what type of documentation of income you need from your mortgage lender. Decide whether you really need to cash out some of your home equity or if you can get by on other sources of income.

 

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