You are qualified and you can be approved
For all homeowners with mortgages, the average mortgage rate at 5.3 percent. It's no wonder that refinance volume is soaring.
Refinance requests accounted for four out of every five loan applications last week, according to the Mortgage Bankers Association, and volume remains heavy nationwide.
However, there are plenty of homeowners still sitting on sidelines, scared into thinking they won't qualify for today's mortgage rates. As a result, these homeowners never apply for one to find out for certain.
As an active loan officer, let me be the first to say, it's not as hard or difficult to be approved for a mortgage as you may have heard. Mortgage approvals are still about the same three things:
And you can't get approved unless you apply.
Income: Prove what you earn
For today's mortgage applicants, the key element is proving strong income.
Income, of course, is relative. In order to get approved for a home loan, your verified monthly income should be slightly more than double your recurring monthly obligations.
If you're a salaried employee, calculating monthly income is typically simple. Take your annual salary and divide it by 12.
For those of you who are self-employed or for those whom bonuses and/or commissions exceed one-quarter of your annual income, verifying income requires tax returns.
This is one instance where having a good accountant can be costly.
If your tax returns incorporate a large number of write-offs and/or write-downs, your adjusted gross income may not reflect your true earnings power and your lender may decline your application.
Equity: Have ownership in your home
"Fear of no equity" is another reason why many homeowners avoid the mortgage application process. And that shouldn't be.
For one, there are loads of programs for homeowners who have lost varying degrees of home equity. Even if you're underwater, there may be a program for you. You can't know unless you talk to your lender.
And for homeowners backed by the FHA, lost equity is a moot point.
The FHA Streamline Refinance ignores home equity completely; you could be 100 percent underwater and it wouldn't matter. So long as you've been paying your mortgage as agreed, you'll likely be streamline-eligible.
Note: Not all lenders offer "underwater mortgages." So, if your first refinance application is with a bank that can't help you, you should make more phone calls to other banks.
You need to know your options.
Credit: Have a history of paying your bills
Lastly, your credit matters.
The standard "bottom line" for credit scores this season is a 640 median score from the major three credit bureaus. This means that you can have one low score and one high score--it's the middle score that matters.
There are some instances where credit scores as low as 600 are acceptable, but mortgage rates are often higher for those borrowers.
If you pay your bills on time and have a limited history of collections and charge-offs, expect your credit score to be in range for a refinance. You won't know your score, however, until you ask your lender.
Don't sit on the sidelines. Get in the game
If your mortgage rate is north of 5 percent--no matter what--spend just 5 minutes on the phone with your lender. Submit an application and get a rate quote. If you have the income, equity and credit to qualify, weigh your options and act decisively.
Mortgage rates are low, but they rarely stay this way. The refi boom will end someday. Make sure you were a part of it.
Dan Green is a loan officer with Waterstone Mortgage in Cincinnati, Ohio, and the author of the nationally recognized mortgage blog, TheMortgageReports.com. Dan serves the purchase and refinance markets, specializing in Jumbo Mortgage and FHA Streamline Refinances. Dan speaks to national audiences about mortgage rates and the mortgage market. Follow him on Twitter at @mortgagereports.
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