Equity Requirements for Refinancing
When considering a refinance, most borrowers are looking for an easy way to assess if they have enough equity in their home to refinance.
Unfortunately, equity requirements are not uniform. This can be difficult to understand for many homeowners.
It’s common that a borrower will find a great rate advertised and will want to lock in that rate, but are then shocked to find during the appraisal process that their home value dropped or hasn’t increased as much as expected. Combine low home value with a low down payment made on the current mortgage, and it’s a recipe for disappointment.
Best First Steps
Contact a HMAC Team Cal Point Mortgage licensed loan officer so that you can work together to try to estimate your home’s worth. Attempt to find any information to make the estimate as accurate as possible. It’s best to compare information from multiple sources instead of relying on a single source.
A good benchmark to keep in mind is an 80% loan-to-value ratio (this represents 20% equity in your home), but keep in mind that it’s possible to refinance with a loan-to-value ratio that is greater than 80%. This can be done by way of loan products that require mortgage insurance that covers the lender if the borrower should default on the loan. FHA loans, for example, enable homeowners to purchase or refinance with higher loan-to-value ratios through mortgage insurance protection.
Find out before submitting an application how much you’ll need to pay in upfront costs, regardless of whether your application is approved. This way, you can weigh the expense against your attitude toward the likelihood of being approved. However, the only way to know if you’ll qualify for refinancing is to submit an application and to pay the associated fees.