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DW and I are getting close to taking a stab at a refinance to reduce our rate and wanted to know how best to optimize our report card for the underwriters (where to move cash... if anywhere... prior to applying)

Right now our mortgage is $365,000 and our neighbors just sold their house (exact same model with slightly less upgrades inside and out) for $425,000. So I would guess our house would appraise for about 425-430K.

That is a LTV of 85-87%. We would need to bring about 20,000 to closing to get it down to 80%

Our current rate is 5% and credit is in the 750+ range

We have $40,000 in cash and two major loans outside of the mortgage... 1) $41,000 loan on a Honda Odyssey we just purchased in the spring and 2) $38,000 401K loan

Each is roughly a $800-900 payment per month and has about 4 years till being paid off.

So finally to my question. If we were going to attempt to get a refinance to reduce our rate from 5% down to the 3.75% range for a 30 year fixed... does it make sense to keep the $40,000 cash as cash... or pay off one of those loans before applying... or put the $40,000 into the refinance to get to 80% LTV and remove PMI

Does one situation look more appealing to the underwriters... or does it not really matter and all they care about is total cash flow?

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