There are many benefits of refinancing your KC home loan, from lowering your monthly payment to getting a fixed mortgage rate. Up until recently, many Kansas City homeowners assumed refinancing their home loan was a step everyone could eventually take. Unfortunately, the last decade’s tumultuous housing market has given homeowners tighter restrictions on refinancing, including their:
- KC home loan’s current standing
- Home equity
- Ability to pay closing costs
Your Loan’s Current Standing
To refinance your KC home loan, you shouldn’t be in default. While there is the odd lender who will refinance defaulted loans, this situation is rare. Defaulting on your loan makes you less trustworthy as a borrower because you’ve shown you are unable to make payments on time. In the months leading up to your refinance, be sure to stay extra diligent in your loan paying habits.
Maintain Healthy Income Standards
Many loan programs require a healthy debt-to-income ratio in order to refinance. If you don’t meet certain income requirements, you may not be eligible for a loan at all. As a result, it’s a good idea to refinance your home before you retire to ensure you can pay a second loan.
Build Up Home Equity
There’s a reason you aren’t able to refinance your KC home loan a year after purchasing it. You have to build up a substantial amount of home equity before you can refinance. In general, mortgage companies require a higher amount of home equity than the amount you want to borrow through refinancing.
Be Able to Afford the Refinancing Process
In addition to the condition of your loan, your income, and your home equity, you must also have enough expendable income to cover closing costs. Refinancing your KC home loan follows the same general steps as acquiring the original loan. Therefore, there are still costs to consider during closing, such as:
- Appraisal fees
- Prepaid interest or points
- Title insurance
- Loan application fees