Homeowners thinking about refinancing their mortgages may be surprised by the amount of paperwork required today. During the “easy credit” years, some lenders did not require proof of income or documentation. Nowadays, most lenders require borrowers to provide pay stubs, banks statements, brokerage statements, and possibly tax returns. Self-employed individuals may be asked for a profit-and-loss statement. Those relying on bonus income should expect that most lenders will assume this year’s bonus will be a lot less than last year’s, which could make securing approval more difficult.
Determining the amount of equity in the home is key to being approved for a new loan. Homeowners who owe less than 80% of the home’s value are more likely to have refinancing options available to them. Other homeowners who are current on their mortgages, owe 80 to 105% of the home’s value, and have a loan owned by Fannie Mae or Freddie Mac may be able to refinance under the government’s “Making Home Affordable” program.
Other factors to take into consideration when refinancing are the property’s appraised value, the homeowners’ credit score(s), whether or not the property has a second mortgage, and the length of the original loan.
For an excellent comprehensive article from the Wall Street Journal on the subject, click here.
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