Understand 4 factors that influence your ability to borrow
As housing values return and interest rates continue to hold at near-record lows, refinancing can be an attractive option for today’s homeowners to consider.
“Interest rates are just plain historically low,” says Tamara Pearson, a Senior Residential Loan Officer at Independent Bank. “It doesn’t get much better than this.”
According to Pearson, refinancing can help you achieve a number of financial goals, whether you’re looking to lower your interest rate, shorten your mortgage term, drop your mortgage insurance, reduce your monthly payment, or take cash out of your home.
Regardless of your reason for refinancing, lending institutions focus on several common factors that ultimately influence the new rate and term you receive. These include the following:
Your home’s value. “We want to determine if you have equity in the home,” says Pearson. An appraisal is needed for most, but not all, refinances.
Your credit score. Expect your bank to run a credit report. Typically the higher your credit score, the lower your interest rate will be.
Your mortgage payment history. Found within the credit report, this is a “big thing we look at,” says Pearson.
Your income. Just like when you initially purchased your home, you’ll need to provide proof of stable income in the form of W2s, pay stubs, and bank statements.
Pearson encourages homeowners to seek the advice of a professional lender to discover all the refinancing options available to them, including the Home Affordable Refinance Program.®
Equal Housing Lender