Refinancing your home is an outstanding way to lower your mortgage payments and help increase the value of your property to pay off your debts.
Refinancing is possible only if you have equity in your home. This includes the amount that you can refinance as well as the interest rates that you might be eligible for.
Here are some guidelines to help you figure out how much equity you should have.
Understanding Equity & LTV
Equity is the equity in your home. It’s the value of the property that you own, minus the mortgage. If your home is valued at $100,000 and you have $75,000 in a mortgage, you will have 25 percent equity.
The equity is usually higher, which means it’s easier to obtain a loan. This is because a larger personal stake means that you are less likely to default on loan payments.
LTV, also known as loan-to-value ratio (or loan-to-value), is a key factor that lenders use to determine whether you will be approved for a home equity mortgage. LTV is something lenders will discuss with you. You can calculate LTV by subtracting your mortgage from the value of your home.
The 20 Percent Equity Rule
Refinancing requires that at least 20% equity be held in the property. If your equity is lower than 20% and you have good credit ratings, you might be able refinance. If this occurs, the Beverly Hills Mortgage Broker might charge you a higher rate of interest or require you to take out mortgage insurance.
Refinance with Mortgage Insurance
For homeowners with less than 20% equity, mortgage insurance is required to protect the lender in the event of default on loan payments. The homeowner pays the insurance premiums either monthly or upfront, in one payment.
You may be eligible to refinance your home up to 95 percent if you don’t take cash out of the loan (also known as cash-out financing).
Financing with the FHA
You may be able to refinance your mortgage through Federal Housing Administration (FHA) if you have low credit scores or very little equity in your home.
These loans are made through approved by a Beverly Hills Mortgage Broker and are backed by the government. Although interest rates are low, they can be more flexible than others. The maximum loan amount may also vary from one county to the next. You may be eligible to refinance up to 85 percent or 95 percent of the value of your home if you meet certain criteria.
Appraisals Equity
In addition, the Beverly Hills Mortgage Broker will require an appraisal of the property’s worth before determining whether you are eligible for refinance. An appraisal is a calculation of the fair market value of the property.
An appraisal is required if you’re refinancing with the FHA. It also considers the safety and health of your home. The appraisal may be affected by roof leaks, missing handrails, or ventilation problems.
If you aren’t sure if you have enough equity to refinance your mortgage, you should make sure to understand the fees that you will have to pay to apply for a loan. These fees can generally range from $300-$800. Prior to paying the fees, make sure to check out similar properties in your area.