refinance

# 4 steps to refinance your mortgage

Highlights
• To qualify, you need a credit score about 740.
• You need to calculate the loan-to-value ratio.
• You will need to verify your income.

With mortgage rates heading to all-time lows, many homeowners may be considering refinancing their homes.

## 1. How much can you save?

How loan length and interest rate affect mortgage
 Length of loan Interest rate Monthly payment Total interest paid 30 years 7% \$1,098 \$230,189 30 years 5% \$886 \$153,870 Savings \$212 \$76,319 15 years 7% \$1,483 \$101,952 15 years 5% \$1,305 \$69,866 Savings \$178 \$32,086
 Mortgage calculations based on a \$165,000 loan. You can run your own scenario using this calculator.

## 2. Do you qualify?

Now you need to determine if you will qualify for a refi. Here are the questions you need to answer:
• How much do you owe on your primary mortgage?

As a rule, homeowners need an 80-percent loan-to-value ratio, or LTV ratio, to qualify for a refinance. However, new government assistance for homeowners has changed that. The new Making Home Affordable refinance program enables homeowners with a conforming loan owned by Fannie Mae or Freddie Mac to have an LTV ratio of up to 125 percent. To qualify for an FHA-insured loan, you'll need a loan-to-value ratio of up to 97 percent. Veterans may be eligible for up to 100-percent LTV. See all of Bankrate's stories on refinancing.

How to calculate your loan-to-value ratio:
1. Find out how much your home is worth (Zillow).
2. Find out how much you owe on your current mortgage.
3. Divide the loan amount by the value amount. The answer is the LTV ratio.
You also can calculate your LTV ratio using this calculator.
• Owe too much more than the house is worth? You're out of luck.
• What is your credit score? A score of 740 and higher will net you the best rates and lowest fees. Credit scores of 680 and up will qualify you, but the terms won't be as attractive.

## 3. What documents do you need?

Here is the information you should have in order to refinance your home.
• Proof of income -- the last few pay stubs.
• Monthly debt load -- current mortgage, home equity loan, credit cards, auto loan, etc.
• Savings -- current bank and brokerage statements.
• Income tax returns, W-2 forms.
• Credit score and credit reports (www.annualcreditreport.com).

## 4. What additional costs are there?

A refinance is a new mortgage, so you'll most likely have to pay all of the same closing costs you did the first time you financed the property. Check out Bankrate's annual survey of average closing costs to see approximately what you can expect to pay in your state.