By refinancing a home mortgage, homeowners can save a significant amount of money every month on their home loan payments. A homeowner with a 30-year fixed-rate mortgage loan of $165,000 would save more than $100 every month by refinancing from a loan with an rate of interest of 6 percent to one having a rate of 5%, which adds up to more than $1,200 in savings per year. But refinancing to a lower rate could be challenging in the event that you’ve got a high debt-to-income ratio. Most lenders need your monthly payment obligations, including your mortgage payment, to be no more than 28 percent.
Gather and make copies of your significant financial paperwork, including your latest federal income tax return, continue two paychecks, credit card bills, additional loan statements and checking and savings account statements. You'll use these to prove to your lender that you are working to lower your monthly debt obligations.
Calculate your debt-to-income ratio. Total your monthly payment obligations, including the minimum required monthly payments for your credit cards, mortgage loan and other loans. Total your gross monthly income. Divide your monthly debt into your gross monthly income. This will provide you with a percentage figure. It's good to know this info before you begin working with a mortgage lender.
Contact many mortgage lenders, not simply the one currently servicing your home mortgage, and clarify you'd like to refinance your existing mortgage to one having a lower rate, but you have a high debt-to-income ratio. Inform lenders what this ratio is, and ask them if they'd still be ready to work with you. Some will and many others won't.
Prove to mortgage lenders that you are cutting down on your debt. You can do it by showing your lenders a number of your more recent credit bills. If these invoices reveal that you are actively reducing your debt, lenders may be more inclined to handle your refinance. If your wages has obtained a leap, which would permit you to invest more cash every month on paying your debt, then send your creditor your latest paycheck stubs to confirm this.
Send your mortgage creditor all of the copies of your financial paperwork and fill out the organization 's Uniform Residential Loan Application if the creditor says it is ready to work with you regardless of the large debt-to-income ratio. This will formally start the refinance process.
Sign any closing papers to finish the refinance process. You'll also must pay your refinance rates at this moment, either by rolling them into your new monthly payments or by paying in a lump sum at closing.