When the recent pandemic struck, the economy was affected in every way, and so was the housing market. The positive thing out of the situation was the ultra-low mortgage rates that have continued to date. This makes it an excellent time to consider refinancing your mortgage.

While you can take advantage of low-interest rates of below 3% for 30-year, 20-year, and 15-year fixed-rate loans, there are some things you need to keep in mind before you refinance your mortgage.


What Do You Need to Know Before Mortgage Refinancing?

Here is what you need to consider before you start the mortgage refinancing process.


Reason for the Mortgage Refinance

With many people rushing to seek refinancing, you may be tempted to follow suit and think that it’s a good idea to refinance your mortgage. But, it may not necessarily be the right option for you. The main reason people seek refinancing is because of low mortgage rates. Also, it can be a way to eliminate Private Mortgage Insurance (PMI) if you currently have more than 20% home equity.

But even with these benefits, it still doesn’t mean that refinancing your mortgage is the best thing for you, especially if you don’t plan on living in the same home for a long time after refinancing.


Home Equity and Loan-to-Value Ratio

Before starting the application process, you need to know where your stand financially. Your home equity and Loan-to-Value (LTV) ratio are crucial factors. You get this by dividing your principal loan amount by your home’s recent appraised value. This ratio then determines if you qualify for a mortgage refinance. Most financiers require at least an 80% LTV. If your LTV is lower, you may end up with a higher interest and a PMI requirement because you’ll have a lower percentage on your home equity.


Credit Score And Utilization

Refinancing your mortgage is equivalent to taking a new loan and is therefore treated as such. You need to meet the borrowing requirements set by your lender, including credit score and Debt-to-Income (DTI) ratio. The current credit score standards set by Fannie Mae and Freddie Mac are 650 and at least 50% credit utilization.1


State of Your Paperwork

You need to have your documents ready when applying for a mortgage refinance. Some of the required documents include tax returns, pay stubs, title insurance, home insurance, proof of debt, W2 statements, and proof of assets. Knowing where these crucial documents are before you start the application process will help make the process quicker.

Next Steps For Mortgage Refinancing 

The low mortgage refinancing rates present an excellent opportunity to refinance your mortgage. However, keep the four things discussed above in mind, especially why you are looking to refinance in the first place. If you don’t need to refinance, don’t feel pressured only because everyone else around you is doing it. Refinance only if you know that it’s the best thing in your situation.

 

“About Mountain West Financial and the CalPATH Home Loan Program

Mountain West Financial is the exclusive lender offering CalPATH, the #1 home loan program for Teachers, Police Officers, Firefighters, and other public employees who serve our local California communities.

You may contact our CalPATH Hotline @ 800-310-7577, seven days a week from (8:30 am to 8:00 pm). A CalPATH advisor will be standing by to answer (any & all) questions you may have about the home buying or refinance process.

We look forward to working with you soon!

Sincerely,

Joe Moore

Branch Manager”

 

Links to External Sources:

  1. https://www.rockethq.com/learn/home-buying/debt-to-income-ratio