Mortgage Refinancing - Reduce Your Disqualifying Debts for a Better Mortgage Rate

If you are in the processing of mortgage refinancing, you can improve your interest rate by cleaning up your credit and reducing your debts. Any type of legally enforceable recurring debt may be counted toward your debt ratio; the greater your debts, the more of a risk you are and the higher your mortgage rate will be. Here are several tips to help you minimize your disqualifying debt when mortgage refinancing and qualify for a better interest rate.

Mortgage Refinancing: What Debts to Count, What to Leave Out

When calculating your total debt ratio, you lender usually divides your bills into two types. These include installment debt like your car, boat, student loans, and medical bills, and revolving accounts like credit cards or any open credit lines like a department store charge account. Most lenders ignore bills you pay for installment debt that are scheduled to be paid off within 6 or 10 months after the date you apply for mortgage refinancing. If you lease your vehicle those payments will still count against you.

You do get a break on your revolving debt. If you routinely pay several hundred dollars more than the minimum amount due each month, many mortgage lenders only count your payment as five percent of your outstanding balance. When mortgage refinancing you will need to prove your qualifying income, you can also improve your application by documenting your debts. This will help the qualifying ratios your lender uses when evaluating your application for mortgage refinancing. Here are several tips to minimize your disqualifying debt.

I. Consolidate Your Credit Cards - One payment of $400 each month will hurt you less than four payments of $100; however, don't close the accounts you consolidate and run up the balance on one. Credit scores don't like high balances near your card limits.

II. Pay Down Your Debts - If you have installment accounts with less than 12 months to go, consider paying two-three months in advance. That pushes these debts off the lender's radar and significantly improves your qualifying ratios.

III. Avoid New Debts - No matter how tempting it may be, avoid making any purchases with credit prior to applying for mortgage refinancing. Your credit score will suffer if you do, and you're much better off waiting until after you've completed mortgage refinancing.

These tips are especially useful if your qualifying ratios are near or exceed the mortgage lenders limits for total debt, or if your credit score is less than 700. Having the smallest possible debt profile helps offset problems with your credit.

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Mortgage Refinancing - Tips to Qualify for a Better Mortgage Loan

If you are in the processing of mortgage refinancing there are a number of steps you can take to ensure you qualify for the best loan. Comparison shopping will help you find competitive lenders offering the best interest rates for your situation. Here are tips to help you through the mortgage refinancing process while avoiding costly homeowner mistakes.

Mortgage Refinancing with a Bank or Mortgage Lender

One of the biggest mistakes you can make when mortgage refinancing is taking out the new loan from your bank. Banks have a loophole in the Real Estate Settlement Procedures Act (RESPA) that allows them to hide information about their fees and profit margins on their mortgage loans. The same is true of broker-banks; these are simply banks pretending to be mortgage brokers. If you take out a mortgage from your bank or a broker bank you will overpay for the loan.

Never Exaggerate On Your Mortgage Refinancing Application

When shopping for mortgage refinancing quotes you should never exaggerate your income or the state of your credit. Once you decide on a loan and submit your application the lender will run your credit and verify your income. If you exaggerated these facts the lender will find out and you could lose the interest rate you qualified for or even have your application denied. Likewise, you should never sign blank or incomplete loan documents. If a lender or broker asks you to misrepresent any information on your application or sign incomplete documents, this lender does not have your best interests at heart and you should find another mortgage lender.

Build Up Your Credit Score Prior to Mortgage Refinancing

Before you start mortgage refinancing it is important to review your credit records for errors. Credit records are maintained by three separate credit agencies and are frequently prone to mistakes. If you find mistakes in your credit history it is important to dispute the errors prior to submitting any mortgage refinancing applications. Having negative information in your credit reports can significantly damage your credit score.

You can improve your credit score by paying all of your bills on time and maintaining low balances on your credit cards. A large portion of your credit score is derived from your history of on time payments; having one late payment could lower your credit score by as much as ten points. Avoid making any large purchases when mortgage refinancing as new credit accounts will lower your credit score.

You can lean more money saving tips when mortgage refinancing, including common mistakes to avoid by registering for a free mortgage refinancing guidebook.

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