Interest rates are beginning to inch upward, and that always signals an increase in the number of mortgage refinance applications. Homeowners typically wait until the market reaches the bottom and then try to move quickly when rates start to rise.
This time, however, it won’t be so easy.
In spite of government programs that say you can refinance your mortgage for 105% or even 125% of your home’s present value, the banks prefer that you have at least 10% equity.
On top of that, even if you’ve paid on time for the last 5 years, they’ll make you prove that you deserve the loan. Gone are the streamlined loans that required nothing more than a good credit score.
Of course, the good credit score is still required. But now you can expect to furnish documents and more documents.
If you’re about to apply for a mortgage refinance, you might as well start gathering those documents and take them along when you visit your mortgage broker or bank.
Start with your last two most recent pay stubs, three months of bank and brokerage statements, and two years worth of tax returns, with W-2’s.
Then gather all the documentation on anything you do in addition to salaried employment. Do you have rental properties? Bring all the information. Do you have a small business that you operate on week-ends? Bring all the information. Do you or your spouse receive Social Security checks or the proceeds of a settlement? Bring all the information.
Next, gather everything about your house. Start with your original title insurance policy and your homeowner’s insurance policy. If you have survey information or if you have documentation of a well or septic system, bring it along.
You’ll also be required to sign an IRS Form 4506-T. This form authorizes the lender to get a transcript of your past tax returns from the Internal Revenue Service. While it used to be required only on self-employment loans, now every borrower must agree. It seems they just don’t trust you to bring in a true copy of the tax form you filed.
Finally, all the paperwork must be perfect. Investors are refusing to buy loans with even the slightest imperfection in the paperwork. So, since lenders make their money by selling those loans, be prepared for their nit-picking.
By the time you’ve finished getting your home mortgage refinanced you may feel like an accused criminal, and you may be completely worn out. But if you can shave a couple percent off your interest rate, it will be worth the hassle.
Author: Mike Clover
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