First, we want to point out that each time you refinance your property you are reducing the equity you have built while owning the home (value of your home minus the balance of your mortgage).  We hope you have taken that into consideration in your decision. We also want to remind you that when you complete the refinance, the existing loan will be paid off and you are receiving a new loan.  So your payments will change.  That means you should develop a new budget reflecting the new payments.

Just as in a Purchase, you need to qualify again using the four basic criteria:  income, credit, mortgage history and home value. There are also closing costs (usually 3-6% of the loan amount) associated with a refinance. The only difference in closing costs between Purchase and Refinancing is the realtors fees which are not included during a refinance. For a greater explanation of the four basic criteria click here.

 (a) Income - is your income sufficient to meet the change in the new debt you are about to acquire along with all the other debts you will still be carrying?

(b) Credit - A credit report will give your lender a good indication of how you have managed your credit in the past and will manage it in the future.  For more information on credit click here.

(c) Mortgage history – this will be included on your credit report and this will indicate to the lender if you were late with your mortgage payments at any time.

(d) Home value - this will indicate if your house is worth what you believe it is worth and has it appreciated or depreciated in value since you purchased it.  This is accomplished by a professional Appraiser.

Next you will have to calculate your debt ratios.  Click here to calculate

When you purchased your home you received a packet at the closing table which contained copies of all the documents you signed.  You will need some of those documents for your refinancing See documents. Having your prior title policy or survey for the new search may reduce your closing costs. Your Mortgage Broker/Lender will determine if the documents are useful. Because of the age of the documents, they may or may not not be useful. At the beginning of the Refinancing process, there are numerous documents you will be signing.  This is to make you aware of the costs involved, disclosures as required by RESPA and the lender, and the proposed terms of the loan.  Keep in mind, the application is only a snapshot in time.  Anything you do between the signing of the application and the closing may have a negative impact on your refinance.  So please ask your lender or Mortgage Broker before you make any major purchases.  You may very well disqualify yourself from obtaining the loan.

We recommend you read this to understand more about interest rates.
Also read Predatory Lending.