Oddly enough, the top three mortgage refinance mistakes can be derived from the “Three Pillars” I constantly talk about.

1. credit
2. debt to income ratio (DTI)
3. home value

To know how the three pillars apply to YOU, you’ll need to get the numbers right before assuming anything.

Before attempting a full on home refinance you’ll want to call a local mortgage broker and have them pull your credit.

But I Already Know My Credit Score You Say!

Unless you specifically received your credit score from a mortgage application, it’s not the same score you see for other consumer credit pulls.

Your mortgage credit score is typically lower than other forms of credit scoring simply because taking on a $300,000 mortgage is more of a risk for the lender than a $30,000 car or credit card. Make sure you know you’re mortgage credit score by asking a loan officer or broker first, you can easily call a local broker and get this information for free in as little as 10 minutes.

Your Debt To Income Ratio Is Simple Math

Knowing your DTI is key to getting loan approval along with the lowest interest rate available. Each lender has certain criteria you need to meet in order to gain approval and DTI is a big part of that. The standard is 45% and some even go up to 50 or 55% depending on your credit score and overall home value.

Figuring your DTI is as easy as taking your total credit reported debts and dividing them by your total monthly income.

For example, if your credit report shows you owe a total of $2300 per month in overall debt and your monthly income is $6000 your DTI is 38% (2300 divided by 6000 = .38).

As soon as you go above the DTI limits, you’ll have to either forego the refinance until you can bring your ratios in line OR work toward creative financing such as a stated income loan or a no documentation loan which usually requires that you be self employed or have unusual circumstances. You can use the search function in the upper right hand corner of this page to get further details on those types of loans.

The Unknown Home Value Has Killed More Refinance Loans Than You Can Imagine

During a home refinance, the homes value can be the make it or break it final figure to determine.

How many times have I talked to a home owner and they thought their property was worth way more than it’s actual appraisal value?

Thousands of times.

Home values fluctuate based on a lot of criteria, some of them being recent sales in the neighborhood, above ground or inground pool, finished or unfinished basement, etc.

Either way, it’s going to cost you $350 to find out — and it’s well worth the money to know ahead of time what your property will appraise at.

I won’t go into the full details here (you can see the main menu for more home value details), however let me just be up front with you and say that getting your own home appraisal before loan shopping can save you a lot of headaches. One being appraisal ownership. If you have the appraisal done you own it and can use it with any lender or broker however if you let the broker or lender order the appraisal for you they control it and that can get messy if you decide to change loan officers for a “better” offer.

In conclusion, know your three pillars up front and you’ll be in a much better position to negotiate a better refinance loan package.