Most people typically decide to refinance a mortgage when they find themselves in a situation of great uncertainty. This can ultimately be a sound course of action, although it’s crucial to conduct extensive research and select a reputable lender. The practice of refinancing remains incredibly common in the United States, and for good reason. According to the personal finance company Bankrate, extremely low mortgage rates have led to a 183% increase in refinance applications in one year (between January 2019 and January 2020). Additionally, the proportion of total applications that were for refinancing reached 64.5% for the week ending Jan. 31, 2020, a 4.1% jump from a week prior.
Questions to Ask Your Lender
In the end, your chosen lender will represent a major factor in determining what interest rate you pay and more. Here are four questions to ask before opting to refinance a home.
What Types of Loans Are Offered?
Several types of mortgage loans exist. Here are four of the most frequent kinds you may come across:
- Conventional loan: This is one of the most frequently sought-after loans and often abides by the guidelines that Fannie Mae and Freddie Mac have established.
- USDA loan: This is a loan backed by the federal government with which you can purchase a home in a qualifying region (suburban or rural).
- FHA loan: This type of loan is also government-backed, although its credit score/history and income requirements are less strict. It’s common for homeowners with an FHA loan to refinance to a conventional mortgage after attaining 20% equity in their home.
- VA loan: These government-backed loans are specifically intended to assist veterans and qualifying spouses of members of the armed forces.
How Do I Qualify for Refinancing?
The requirements to qualify for refinancing often vary with each lending institution. However, most lenders will usually review the following three criteria:
- Credit score: Your credit score will virtually always be a major factor when you decide to apply for a mortgage or nearly any other type of loan. Every major lender should have a minimum credit score needed in order to qualify.
- Home equity: This phrase refers to the proportion of your loan principal that you have repaid. As with credit scores, a minimum percentage of home equity is often needed to qualify for a mortgage. According to TransUnion®, you are recommended to have at least 20% equity in your property in order to refinance.
- Debt-to-income (DTI) ratio: This ratio indicates to your lender what percentage of your finances is devoted to routine, recurring payments. If you have a high DTI, you are more likely to miss a mortgage payment and less likely to hold savings.
Are Rate Locks Offered?
Interest rates on mortgages vary extremely often, just as the real estate market can change drastically from one month to the next. Fortunately, you can keep your interest rate steady while your lending institution closes your loan thanks to a rate lock. Be sure to find out the cost of a rate lock and for what length of time you can benefit from this option. According to Rocket Mortgage by Quicken Loans, many rate locks last between 15 and 60 days.
What’s the Difference Between Interest Rates & APR?
This is an important distinction to make. An interest rate represents the base percentage you pay on your mortgage. Your annual percentage rate (APR), on the other hand, is the interest rate plus any fees that apply and closing costs that are associated with your mortgage. Given that APRs are higher, you should strive to identify lenders who offer low APRs. According to statistics compiled by the National Mortgage Database (NMDB), 82% of borrowers who participated in the 2013 National Survey of Mortgage Originations said a low APR was very important when choosing between different mortgage loan options.
Talk to the Refinancing Experts at Mathis Title Company
Speak to the professionals at Mathis Title Company in Fairfax, Virginia to learn more about what types of questions to ask before pursuing a mortgage refinance. We serve all of the state of Virginia the local area, including Arlington, Alexandria, Chantilly, Vienna, Oakton, Fairfax, Centreville and McLean. Our experienced attorneys and title agents will provide you with personalized assistance and collaborate closely with your mortgage lender to ensure you are being treated fairly.
Robin Mathis is an attorney with more than 35 years of experience and who was honored to have been sworn in to the U.S. Supreme Court. She will help you with title searches and prepare closing documents in a timely and cost-effective manner. Call Mathis Title Company today at (703) 214-4020 or contact us online for more information.