Interest rates on mortgage today are at about their lowest point ever. Those with an existing mortgage could save hundreds of dollars per month through a mortgage refinance. However, due to heightened credit restrictions, qualifying for a mortgage refinance today is more difficult that it was a few years ago.

 

Down Payment

To qualify for a mortgage refinance today, and to take advantage of the extremely low interest rates, you will need to put forth a sizable down payment. A few years ago applicants were often approved for mortgages even if they had less than a 5% down payment. Today almost all banks require at least a 10% down payment. To qualify for the lowest interest rates offered and to avoid paying private mortgage insurance, you will need to have at least a 20% down payment. Those purchasing a higher risk property, such as a condo in a high rise building, may need to put down 25% in order to qualify for the best rates.

 

Credit Score

Due to the high rate of foreclosures and mortgage defaults, banks are far more resistant in lending to a person who has a history of not making their loan payment on time or mismanaging their personal credit. Today, banks place far more reliance on credit scores during the application process than they ever did before. A few years ago during the sub-prime lending era, banks were often willing to provide mortgages to people with credit scores below 600. Since many of these borrowers have defaulted on their loans, few banks are willing give mortgages to these low risk borrowers. Today, most banks require at least a 680 credit score and at least a 740 score in order to qualify for the best rates.

 

Affordability

To qualify for a mortgage refinance today, you will also have to meet a housing affordability test. Banks use a debt-to-income ratio test to determine whether you are able to financially support the mortgage loan on a recurring basis. A few years ago, banks were willing to offer a loan as long as this ratio was below 40%. Today, to qualify for this loan your ratio will need to be below 30% and you will have to be able to prove that your income source is reliable and consistent from month to month.