In this low interest rate environment, we have an opportunity to buy and refinance at some amazing rate levels. I last saw such low rates in 2003, but we are now in a completely different lending landscape. Lenders are very cautious of who they are lending to and want to assure that they can sell their loans on the secondary market.
This may be a great time for you to lock in on a low rate, but unfortunately, it does not presume that you can qualify for a loan. Here are some general rules to help you understand what banks are looking for in their borrowers:
- FICO score above 700+ (740+ gets the best rates)
- Loan to Value ratio at or below 80% (75% and below is better and the best rates come with an LTV ratio at 60% and below)
- Ability to document stable and consistent income and assets
- Ideally, the best rates are also at loan amounts of $417,000 and below. The next bracket is $417,000-$625,500 and above this maximum, we’re quite limited in lenders and the requirements for FICO, LTV ratios and loan product options are quite stringent.
The biggest obstacle I have come across with most of my clients is the Loan to Value (LTV) ratio. This has nothing to do with your personal financial profile, but if there isn’t enough equity in the home, you either need to pay down your mortgage(s), or you have to wait to refinance.
Of course, every lender has different variations of these guidelines. For instance, you can still get a loan up to 90% of your value, but in most instances, this won’t make sense because you will not have to pay Private Mortgage Insurance. There are also many other rules to be aware of, but this is why you must work with a knowledgeable mortgage professional to help explain and caution against any potential hiccups.
