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Summary: Refinancing can be a great way to take advantage of a lower interest rate, which can help you save a lot of money on your mortgage. But if you have a low income, can you refinance? This article will explain.
Here’s a common situation: you old mortgage has an interest rate that is quite a lot higher than today’s available rates, and you could save hundreds of dollars each month by refinancing. You have lots of equity in your home now that the market has recovered nicely. There’s one problem: you don’t have enough income to qualify for the loan you need.
Lenders look at an important number called Debt-To-Income ratio, or DTI. They calculate this by adding up the total house payment (including taxes and insurance) and all other debt (credit cards, student loans, car loans, etc.). They divide that total debt number by the borrower’s gross monthly income to arrive at DTI. It can’t exceed 45%.
There are many ways the DTI can get too high: a family that had two incomes when they applied for the original loan may now have just one, there could be more debt in the picture for any number of reasons—or a combination of the two.
Keep in mind that it doesn’t matter how flawless your credit is; if your DTI is over 45% (even 45.01%), you won’t get the loan.
If your DTI is too high, running out and getting a second job won’t do the trick; in order for income from a second job to count, you have to have it for at least two years. So we have to look at the debt side of the equation to solve the problem.
There are two common ways to get your DTI down.
One other possibility that may work for you if your DTI is too high: see if you are due for a raise. Really, I’m not kidding. If it has been a year or more since your last increase, you may be overdue. Just make sure that your HR department is prepared to show your new rate of pay on the Verification Of Employment form that we will send them.
Here is the real message that you should take from this: just because your loan refinance situation may look somewhat hopeless today doesn’t meant that we can’t work together to find solutions. Not all of the solutions are obvious, but a little creative thought and brainstorming can often come up with the solution you are looking for.
If you want to see what else you can do to get the most from a mortgage refinance, download our free ebook by clicking the button below.
Do you have questions about home loans? Are you ready to apply for a mortgage to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest, and have been doing so since 1992. Contact us today with any questions you have about mortgages.
WA state residents who have built up equity in their houses have four ways to improve their financial options: taking out a second mortgage, a home equity loan, a home equity line of credit, or simply refinancing the current mortgage — with or without a cash-out feature. Equity represents wealth. Talk with a mortgage professional about using it wisely.
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