ANSWERS: 1
  • To refinance a home, a borrower must meet certain requirements. These vary based upon the type of loan chosen, whether it is a conventional or a government loan.

    Significance

    Loan guidelines help a lender decide whether a borrower can qualify for a loan. Most mortgage loans require a borrower have a 620 or better credit score to qualify.

    Function

    Guidelines give lenders a basis for decision making. One such basis is the debt-to-income ratio, the amount of debt payments a borrower has to his total monthly income. A borrower must have a ratio lower than .40 to qualify.

    Types

    The guidelines vary based upon mortgage type. Conventional guidelines are looser than government ones, but conventional guidelines require higher down payments and credit scores than government guidelines.

    Considerations

    A borrower may meet one qualification and miss another. One guideline that often ruins borrowers is built-up equity in the home. A borrower must have at least 3.5% equity to refinance a government loan and 5% to refinance a conventional loan.

    Warning

    Mortgage guidelines are getting stricter with increased regulations, making it harder for many to get a mortgage.

    Source:

    FederalReserve.gov: A Consumer's Guide to Mortgage Refinancing

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