Refinance Mortgage Lenders: Their Perspective On Your Application

Refinance mortgage lenders allow homeowners to renegotiate the terms of their mortgages to include lower rates, lower monthly payments, and/or a shorter or longer payment term. Recognizing how these mortgage lenders look at your refinancing application can help you negotiate the best terms.

Types of Mortgage Lenders

Before you submit your application, determine which type of mortgage lender is best for you:

  • Prime – Prime lenders will most likely be able to offer you the lowest rates and best overall terms. However, prime refinance mortgage lenders accept only those with the best credit. Even if you have some late payments in the past three years, you may still qualify.
  • Sub prime – Sub prime lenders are more likely to accept your application, even if you have poor credit or have been foreclosed upon or have declared bankruptcy in the past. Some lenders, however, are rethinking sub prime mortgages and may still need to take a close look at your application before approving you for a new loan.
What Lenders Consider

Refinance mortgage lenders look at a number of factors when they examine your application, including:
  • Credit Score – Your credit score will determine your maximum credit limit, your minimum interest rate, and whether or not you’re approved for refinancing. Keeping your credit score high is essential to being accepted for a favorable mortgage refinance.
  • Property Value – A mortgage lender will likely call for a property assessment of your home. As years or even decades may have passed since your initial mortgage, your property’s value may have gone up (with inflation or increased neighborhood value) or down (due to needed improvements). The lender must assess the new value of your property to determine whether they can recoup their money should you default.
  • Your Ability and Willingness to Pay – Refinance mortgage lenders will look at your credit history and paycheck stubs. They use this information to determine that you have enough income coming in to be able to meet monthly payments and also that you have demonstrated a willingness to pay your loans and debts by having no to few late payments in your credit history.
Preparing the Best Application

While you can’t erase past mistakes, you want to make sure that refinancing your mortgage is worthwhile. Opt for the best terms and rates by trying prime lenders first. Before you apply, you can make a few improvements to make sure your mortgage application is seen favorably:
  • Improve Your Credit Score – Stop making late payments immediately. Even if you have a history of late payments, if you spend 3-6 months making on-time payments, you’ll see a subtle improvement in your credit score. Even the smallest credit score improvement can afford you better mortgage terms.
  • Improve Your Home-It’s time to fix that leaky sink or faulty wiring. Although you may be unable to afford vast improvements, affordable improvements such as repainting rooms with peeling paint and recarpeting your home can increase the value of your home in the mortgage lenders’ assessments and in turn make you eligible for more favorable rates.
Where to Find the Most Favorable Lenders

Mortgage lending companies, banks, and credit unions are the most common refinance mortgage lenders. Seek the approval of multiple lenders in order to increase your chances to have your application viewed favorably.

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