Refinance Your Mortgage in Colorado

The specific eligibility requirements for refinancing your mortgage will depend on the lender and the loan type you choose. However, common eligibility requirements include the following:

Some lenders require Colorado homeowners to hold their existing loan for a certain period of time before they are eligible to refinance. For example, the Streamline Refinance program through FHA requires at least six months of on-time payments.

An appraisal is an important part of the refinancing process and may affect your eligibility. If the property doesn’t appraise for the loan amount or a percentage of it, the lender may deny your loan application.

Similar to a traditional mortgage loan, you will need a good credit score to qualify for a refinance loan. Most Colorado lenders require at least a 620. However, FHA loans may have lower credit score requirements.

The lender may also order an inspection to ensure your property is in good condition. A home that requires major repairs may not qualify for refinance loans.

Eligibility and requirements may vary, depending on the property type. For example, loan eligibility for refinancing investment or vacation properties may be stricter than for a primary residence.

The loan type you currently have may affect your refinancing eligibility. For example, the Colorado Streamline Refinance program is only available to existing FHA or VA loans.

Many lenders require homeowners to have at least an 80% home-to-value loan ratio, which means they have paid down at least 20% on their original loan amount or their home has increased in value. A cash-out home equity loan may have even higher equity requirements.

A maximum of a 43% DTI ratio is usually required for home loans, whether acquiring a traditional mortgage or refinancing an existing one. DTI refers to the difference between your existing debt and income. A better DTI can lead to more competitive mortgage rates.

It’s important to consider the costs of refinancing. While you won’t need a down payment, you will have to pay other costs, like application fee, credit check, and origination. Individual costs may also vary, depending on the lender.

Homeowners in Colorado can expect to pay the following closing costs when refinancing a mortgage:

• Application: $75 to $500
• Origination: Between 1% to 1.5% of the total loan amount
• Credit Report: Between $25 to $30
• Document Preparation: Up to $600
• Home Appraisal: Between $500 and $1,000
• Home Inspection: From $200 to $500
• Flood Certification: $20 to $40
• Title Search and Insurance: From $300 to $2,000
• Recording: From $25 to $250
• Reconveyance: From $50 to $60
• Attorney Fee: From $500 to $1,000

The breakeven point of a refinance refers to the point at which you make up the closing costs you pay in return for a lower monthly payment. Calculating your break-even point can help determine if it makes financial sense to refinance your Colorado property.

Determining your break-even point is also a good idea if you plan on selling your Colorado property soon. By calculating how much money you save versus the money you pay, you can determine if you will enjoy positive savings before you plan to sell.

Calculate your break-even point using the following calculation:

• Add all fees incurred from refinancing, including origination, discount, application, underwriting, appraisal, credit report, tax monitoring, and tax research.
• Compare your current monthly payment to your new payment and subtract the difference.
• Divide the incurred refinance fees by the monthly savings amount.
• You’re left with the number of months it takes to break even.

For example, let’s say you pay $9,000 to refinance your Colorado mortgage. A lower interest rate results in a cost savings of $330 per month. ($9,000 / $330 = 27 months). 

If you plan to sell your Colorado property in less than three years, it may not make sense to refinance. However, if you plan to stay put for a few years, lowering your monthly payment could pay off in the short term. It’s also important to note that you can help control your costs by price-shopping mortgage lenders.

You could use a mortgage refinance calculator that includes your break-even calculation. F5 Mortgage is also here to help you determine if refinancing your mortgage makes financial sense. Work with a mortgage loan officer to find competitive mortgage interest rates to maximize your savings.