Appraisal and Credit Requirements for Home Refinancing

If you are getting ready to refinance your home or existing mortgage, there are several requirements to meet before approval. Because there are several different loan types as well as specific criteria that you must meet, it is important to discuss all options with your lender.

Credit scoring
One of the most important things a lender looks at before you can be approved for refinancing is your credit or FICO score. This is considered a credit check and looks at your overall credit history, both past and present. The lender will run a credit report that displays all of your creditors, open accounts, closed accounts and revolving credit accounts. Information provided will include the amount of the debt, if it was paid on time and if it was turned over to collections or paid off successfully. Any type of negative information you may have on your credit report such as a collection account, high unpaid credit card balance, bankruptcy or judgment will affect your FICO score. Your FICO score is run separately from the credit report but gathers information from it. Your score is based on your debt-to-income ratio, length of credit history, payment history and any negative remarks found on your credit report. A FICO over 700 will likely assure that you will be approved for your mortgage refinance and receive a good interest rate. Scores over 800 are considered very good to excellent and you should be eligible for the lowest interest rates on the market.

It is important to have your home appraised when you are pre-approved for refinancing. In most cases, your home has increased in value since you originally bought it or refinanced it last. The appraiser will take into consideration any home improvements you have made, what you owe on the existing mortgage and the fair market value of your home compared to others in the neighborhood. This is part of the refinancing process and will help determine the interest rate and eventually the new payment on your mortgage.

Loan type
There are several ways you can refinance the loan you currently have. If you want to keep the terms of the loan the same and do not wish to borrow equity out of your home, you can refinance your loan term for a lower interest rate and therefore lower your payment. If you have a large debt load and would like to consolidate those payments, you may be able to borrow against your home with a home equity loan or second mortgage. This may keep the payment about the same or lower, except you will have eliminated your excess debt and credit cards and only have to make one low monthly payment.

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