Qualifying for a Mortgage?
It's essential to consider how much you can afford to pay before you look for a house. Considering affordability early on will save you time and money because you won't bid on unattainable houses or apply for loans that are out of your ballpark. It will be easier to get a loan and, if necessary, you'll be able to take creative steps toward improving your financial and credit profile. Good lending institutions are very careful with their depositors' funds. They employ professional underwriters, who evaluate the degree of risk involved in loans that the lenders have been asked to make by prospective borrowers. Underwriters tell the lender how much risk is involved in lending money to you. If they determine that you're too risky, chances are you won't get the loan. Underwriting standards vary considerably from lender to lender. Lenders constantly fine-tune the way they evaluate mortgage applications in search of better screening techniques to keep borrowers - and themselves - out of foreclosure.
Lenders traditionally rely on 2 factors to assess prospective borrowers' creditworthiness. They are the ability of a borrower to repay their loan, and their willingness to pay. Lenders must find out what the house you want to mortgage is currently worth, because the property will be used to secure your loan. They do this by getting an appraisal, a written report prepared by an appraiser (the person who evaluates property for lenders) that contains an estimate or opinion of fair market value. The reliability of an appraisal depends upon the competence and integrity of the appraiser. A loan-to-value ratio, or LTV, is a quick way for lenders to guesstimate how risky a mortgage might be. LTV is simply the loan amount divided by the property's appraised value. If you're borrowing $150,000 to buy a home with an appraised value of $200,000, the loan-to-value ratio is 75 percent (your $150,000 loan divided by the $200,000 appraised value). The more cash you put down, the lower your loan-to-value ratio and, from a lender's perspective, the lower the odds that you'll default on your loan. It stands to reason that you're less likely to default on a mortgage if you have a lot of money invested in your property.
Conversely, the higher the LTV, the greater a lender's risk if problems arise later with your loan. That's why most lenders charge higher interest rates and loan fees or require mortgage insurance whenever a loan-to-value ratio exceeds 80 percent of appraised value.
What is the Eligibility Criterion for Refinance?
Refinancing is a process of obtaining a new mortgage to replace the original one in an effort to reduce monthly payments, lower interest rates, change in mortgage lender or company, or in order to obtain money for larger purchases such as cars or to reduce credit card debt. There are various factors that are going to influence your decision of refinancing like fall in interest rate or you expect them to go up or your credit card score is improved enough so that you might be eligible for lower rate mortgage or you just simply like to switch into a different type of mortgage.
When you refinance, you pay-off your existing mortgage and create a new one or you can even combine primary as well as second mortgage into a new loan. During refinancing you may encounter the same procedures and have to pay same types of costs as well.
Are you eligible for refinance?
The eligibility criteria for refinancing are similar to the approval process that you went through during the first mortgage.
- Remortgaging a mortgage provides lots of advantages for some homeowners. By locking in a lower interest rate or extending the term of a mortgage loan provide great benefits to home owners by saving their thousands of dollars. For refinancing your lender will consider your income and assets, credit score and other debts, the current value of the property and the amount of money now you want to borrow. If you have a good credit score then it is possible that you can get the loan at lower rate and if your credit score is lower than you may have to pay a higher interest rate on a new loan.
- Most of the banks and lenders require their borrowers to maintain the original mortgage at least 12 months before they can go for refinance. Each lender has its own terms and conditions and thus it is best to check with specific lender for all restrictions and details.
- For remortgaging you have to show evidences of your income such as pay slips, bank account statement, your debt repayments, household bills and living cost etc before applying for remortgage because lenders need to check whether you can afford the mortgage payments in future if interest rates were to rise
- A refinanced loan requires the borrowers to pay an array of closing costs such as appraisal fee, prepaid interest, loan application fee etc. Borrowers must pay this fee in order to get refinance. Closing costs cannot be rolled into the mortgage loan application.
There is no fixed time when a person think about remortgaging it depends mainly on his own circumstances and the reasons why he or she is taking this step. But when you are getting near the end of a fixed rate deal and if you are on your lender's standard variable rate then certainly you can think about remortgaging.
Do I Really Need an ARM to Qualify?
It is easier to qualify with an ARM than with an FRM. In deciding whether an applicant has enough income to meet the monthly payment obligation, lenders usually use the initial interest rate on an ARM to calculate the payment, even though the rate may rise at the end of the initial rate period. That's why, when market interest rates increase, ARMs become more common and FRMs less common. Some borrowers who could have qualified with an FRM at the lower rates, now require an ARM to qualify. However, many borrowers who appear to require an ARM to qualify in fact could qualify with an FRM. It just takes a little more work. As its name implies, an adjustable rate mortgage (ARM) is one in which the rate changes (adjusts) on a specified schedule after an initial fixed period.
An ARM is considered riskier than a fixed rate mortgage because your payment may change significantly. In exchange for taking this risk, you are rewarded with an initial rate that is significantly below market rates for 30-Year Fixed Rate Mortgages. The more frequent the rate adjustments through the life of the loan, the lower the initial rate. Even after the loan adjusts, new rates will typically be below rates being offered to new borrowers for the 30-Year Fixed Rate program.
Obviously, it's best to have an ARM when interest rates are predicted to fall (not rise) because in periods of rising interest rates, it is possible that you will ultimately pay much more for an ARM than for a 30-Year Fixed Rate Mortgage. Although somewhat riskier than a fixed rate mortgage, an ARM may benefit you if you have certain needs or find yourself in certain circumstances. In other circumstances, you may be better off with a fixed rate or other type of mortgage. Examine your financial and life situation with the help of your loan officer or financial advisor.