Q: My grandson will be graduating from high school next year. I have equity in my home that I’d like to use toward his college tuition. What are some things I can do to ensure that I’ll qualify for a VA refinance loan when the time comes?
RP: Here are the top 5 actions everyone should take if they’re thinking about refinancing (or purchasing) a home, with a special note to those with income generated from retirement or investment accounts:
- Stay current on your mortgage payments. In order to qualify for a loan, you must be current for a minimum of 12 months. If you are late (30 days past the due date) you will be unable to obtain a loan until a full year has passed since your last late payment. Remember: missing the exact due date and being past due are two very different things. If a loan officer asks you if you have been late on a payment, only say “yes” if it has been 30 days late.
- Create an income history. Many times grandparents are living off retirement savings, which is the “income” that a lender uses to determine how much mortgage a borrower can afford. If that income history is not sufficient prior to the application, the underwriter may decline the loan. Estimate the new payment for the refinanced mortgage and revise income now to support the payable down the road.
- Keep Debt-to-Income ratio below 50%. Make sure that the new house payment and any payments on outstanding loans or credit cards don’t exceed half of your income. If they do, one option is to increase monthly disbursements from your retirement accounts for at least a year prior to application to show the proper ratio. The other option is to pay down debt, for this reason and the one below.
- Pay down your debt. The amount of debt vs. balance on your credit accounts can hinder your ability to obtain a home loan. If your balances are close to their limits, pay down as much as you can and keep them low.
- Review your credit. As they say, knowledge is power, and that goes for your credit score as well. If you know you want to refinance in a year, now’s the time to start monitoring your credit score to make sure it is where you need it to be in 12 months.
Ryan Prestwich started working with iFreedom Direct® in the Veterans Services Department in 2004. For the past 5 years, he has been a group sales manager in the Refinance Division overseeing 11 VA loan professionals. Ryan’s vast experience with the VA Home Loan Guaranty Program helps to ensure iFreedom Direct®’s refinance clients have an experience that exceeds their expectations. If you have any VA loan refinance questions for Ryan, please comment below.