So, guys, in this video,
we're going to talk about refinancing, and I've been getting
a lot of questions on this, so what I did is I broke down
five things that you need to look at and the things that mortgage lenders look
at when they're looking to refinance you. But first, if you're enjoying our content,
please be sure to click the Like and Subscribe button
so you'll never miss any of our videos. So this past year, the average U.S. homeowner
saw their home prices go up by 19%. Simultaneously,
interest rates have been historically low, with many lenders offering less than 3%
for a 30 year mortgage. With all of that,
you've probably thought about refinancing. It's a little more involved than just
plugging a few numbers into a spreadsheet. So here's what you should look at when you're looking into refinancing
when it comes to refinancing. Credit scores are very important. While historically low interest rates
have been driving people to look into refinancing. Not everyone will be offered
a rate of 3% or lower, even if they have good credit to lock
in the absolute lowest rate available . Many lenders are requiring
a credit score of 760 or higher. If your credit score is lower,
you could still receive a more favorable interest rate
than the one you're currently locked into. But it's best to manage your expectations. In addition to higher credit score
requirements, lenders are scrutinizing people's debt to income ratio
a lot more intently to get the best rates. Lenders usually want to see
that your housing payments are 28%
or less of your gross monthly income. Overall, your debt to income
should be 36% or less. Typically, refinancing costs can be about two to 5% of the principal
amount of your loan. That's for residential. So make sure that this added expense
won't cancel out the benefits of your refinancing. So some lenders you've seen it,
they offer a no cost refinance. But that typically means that you'll pay slightly higher interest rate
just to cover the closing costs. So those costs aren't free. They're just baked into the rate. Be careful that you're refinancing costs. Don't cancel out whatever advantage
the lower repayment would offer to determine
if the refinancing makes financial sense. Just divide
your closing costs by the amount you would save each and every month
if you were to save $100 per month on your payments,
and the closing costs were $4,000. It would take you 40 months to break. Even if you plan to live in your house
for longer than that, then it makes sense to refinance. Another thing that lenders will want
you to know is the amount of equity you have in your home. So your home equity,
of course, is the difference between what your loan is
and what the property is worth. So if you choose a cash out refinance, you can take some of this equity in cash
tax free. You have to pay it back.
Therefore, it's not profit. one caveat here
these lenders, they're going to require that they get an appraisal
in order to refinance, so make sure that they are definitely aware
of any improvements or upgrades that you've made your property
if you've replaced an HVAC. For example, be ready to point that out
and provide documentation to the lender. It also helps to make your house as tidy, cluttered and inviting as possible
when the appraiser visits your property. Curb appeal does factor into an appraisal,
so if you can mow the lawn or do any minor landscaping improvements,
that would definitely be worth your while because you can maximize
your loan that way. Once you've done all of that,
make sure that you respond to your lender as quickly as possible
whenever they request any doc. Refi can take 30 to 45 days
and sometimes even longer, and it's in the best interest
to keep your process moving along because house prices can change
once the lender has had a chance to review your appraisal and finished
their underwriting on your loan. They will send you all the closing
documents, including a closing disclosure. Your lender must give you at least three days to review your disclosure
after you receive it, so be sure to let them know
that you received it right away . So those are the steps to refinancing. I know this sounds like a lot, but it's up to each of you to decide
if it makes sense financially. But if there's a way
to lower your overhead and lower your payment,
why not take advantage of it? Until next time, I'm Ken McElroy.
