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Mortgage rates are at a historic low right now, which means mortgage lenders’ phone lines are ringing off the hook. Everybody wants to borrow money for as little as possible. It’s resulted in some unexpected changes for the real estate market. In some areas, homes are selling for far more than they’re appraising. When money is cheap, buyers are willing to go a little higher in their offers. Some places receive several backup offers within days of being listed. Meanwhile, individuals who already have homes and want to refinance are finding themselves in a tough market. Mortgage companies are being a bit stricter about their guidelines for refinancing, given the COVID-19 pandemic and the inconsistencies it’s causing in the income of some households.
Whether you’re refinancing a home or buying a home, it’s important to remember that when deciding whether or not to approve you, mortgage companies are looking at a few things. But there is one big bottom-line number that ultimately influences their call: your monthly payment. They want to see that you’ll be able to afford those monthly payments, and they’re only comfortable with your payments coming out to a certain percentage of your income (it typically hovers around 50 percent maximum). If numbers are tight, there are some things you can do to lower those payments so you qualify. Read on to learn what they are.
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Get the place appraised
Mortgage lenders are concerned with the loan-to-value ratio. Essentially, that’s about how much your place is worth versus how much money you’ll be borrowing. They’re most comfortable with lower loan-to-value ratios. So, for example, if you’re refinancing a place that appraised at 550K and your loan is for 500K, that loan-to-value figure is pretty high. You’re borrowing nearly all the money required to buy the place. If that ratio gets high, it could mean you pay a higher rate – it’s how the lender protects themselves against loss. But, if you are refinancing, your home may have increased in value since you bought it. Having it appraised could show that your place is worth more than you thought, which results in a better loan-to-value ratio, and potentially a better rate.
