If you are considering refinancing your mortgage loan it is important to examine your budget first to determine how much mortgage you can afford. Budgeting properly and doing your homework will help you avoid common mortgage mistakes that can cost you thousands of dollars. Here is what you need to know before applying to refinance your mortgage loan.

If you are in the process of refinancing and possibly taking cash back you need to determine how much your new payment will be and if that payment is in line with your budget. Planning before you apply will help you to avoid being turned down once you have found the perfect mortgage loan.

Know Your Debt to Income Ratio

It is important to understand debt to income ratio before you refinance your mortgage, especially if you plan on cashing equity out. This ratio is derived from your pre-tax income per month and how much you owe on your current mortgage. Simply divide your total monthly income by the amount of your bills and multiply by 100. Most mortgage lenders do not want to see a debt-to-income ratio greater than 38-40% of your income.

Plan Before You Apply

It is important to know how much mortgage you can afford before you apply. By preparing a budget and knowing exactly how much income you can document to the mortgage lender you will have a much easier time with the mortgage application process. The best way to do this is to collect at least two years of tax returns and your most recent pay stubs from employment.

Use a Mortgage Calculator

A good mortgage calculator can help you plan your budget around your new mortgage. Mortgage calculators take the principle amount you intend to borrow, your interest rate, your property taxes, and private mortgage insurance, and determine your monthly payment amount. To learn more about your mortgage refinancing options and how to avoid common mortgage mistakes, register for a free mortgage guidebook using the links below.