Should I refinance now or wait?

Question

Hi BP Friends!

I've got a question regarding the timing of a refinance and purchase and how my credit scores will affect my ability to obtain financing:

Background:

1. My wife will be a co-applicant in both cases

2.  I want to refinance an existing mortgage to substantially lower my payment via the HARP program.

3. I want to purchase a new home in the summer of 2016.

4. The average of my credit scores is ~825

5. The averages for my wife ~ 785

6. Broker for my future purchase needs 760 middle score for the best rates on the new purchase. The way I understand it, they will usually take the lowest middle score (likely my wife's).

Questions: What would you do in this scenario? Should I refinance now and still be good 6 months from now to purchase our new home? Or, should I wait to refinance after the purchase?

Russ Draper · Answer

I presume you mean summer 2017.

First, I would find out how much the refinance is going to save vs the closing costs.  Make sure it is worth doing if you are sure you will sell in ~6mo (it probably isn't worth it).

Presuming the numbers work, I would refinance now, just in case something comes up and you can't buy this summer.  I would also focus on raising your wife's score as much as possible.  Credit Karma is free and gives good advice on how to raise your score.  You may find something as simple as raising your credit card limit improves her score!

Russ Draper · Answer

@Nate D. What I mean is raising your credit card limit, not taking out another loan.  I was surprised when I raised my limit and my score went up quite a bit!  It is because it looks better to say "oh he's got a big limit" versus "wow he maxed out his credit card".  Even though you not taking more than you can handle seems wiser, for credit scores they like to see the limits higher.

Nate D. · Answer

@Upen Patel, Thanks for your response! I'm not really sure why its 760. Maybe it has something to do with the fact that I am financing via a "second-tier eligibility VA loan"? I just thought "well, I'm over 760 so I'm good", but then I started looking into a possible HARP refi on our investment property (which would free up money and cashflow) and thought it might bring my score down to lower than 760 once the loan hits the reports.

So now I'm just curious how I should approach both loans or if I can refi first and still be able to purchase in summer 2017. I obviously want to be able to do both, but not sure if I can, or if it's advisable. The refi amount would only be 85k before closing, so I can qualify for that easily on my own. The future purchase would be 300-400k, so we're looking at both applying for that one to make sure we hit income thresholds. Just need to make sure our credit scores are good to go at that time.

JD Martin · Answer

I was thinking the same thing. 760 is a pretty small slice of the population.

Upen Patel · Answer

@Nate D. If you are going to do the refi as an investment, then you should be fine.

Strange that your broker needs 760 for good rate. It is usually 740.

With your great credit, you might want to try and do the purchase loan on your name alone.

Nate D. · Answer

@Russ Draper: Thanks for your input! Since we both currently have no debt besides two other mortgages and don't miss payments, I'm not sure there is much we can do to raise her score over the next 6 months (I don't think she needs to take out a loan to add diversity to her history) other than time. Will look in to that what else can be done though. Also, yes, I mean summer 2017. I will be holding the refinanced property long-term (yrs) as it is currently a rental unit.

Should I refinance now or wait?

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