Although borrowers may feel like kids in a candy store thanks to some of the lowest mortgage rates in history; several of these “kids” are having trouble scoring a loan in an effort to refinance their home. Like almost being teased, many borrowers read about rock bottom rates but grapple with mediocre credit scores and property appraisal concerns, making it difficult to refinance.
In the South Florida market, sometimes referred to as the mortgage bust “ground zero,” only half of the homeowners interested in refinancing will actually qualify for a loan. Lenders are requiring tighter credit scores and a solid proof of income before extending a loan, making it difficult, but not impossible, to obtain a loan.
Historically Lowest Mortgage Rates
Because current rates haven’t been seen since the 1970’s many homeowners are still pushing to refinance their home. “We’ve always had strong credit, but our home value has decreased over the past five years,” explains Davie, Florida homeowner Mindy Cunningham. “Instead of just assuming we’ll be able to refinance, we are crossing our ‘t’s’, dotting our ‘i’s’ and then holding our breath that the loan is approved.”
Although stressful, Cunningham contends that the amount of money she saves on her monthly mortgage payments is well worth the few days of hand wringing. “The money we save allows us to put more money in savings and investments.”
Mortgage Refinance Applications Quadrupled
Plenty of other homeowners echo Cunningham’s sentiment. Home Financing Center, which covers Palm Beach, Miami-Dade and Broward, reports that refinance applications have quadrupled within the past 30 days. Claudine Claus, owner of Home Financing Center, says that because the rates dropped once again an entirely new group of homeowners are interested in refinancing.
It’s just not just South Florida that is seeing an uptick in applications. Online lender, Lending Tree reports that refinance applications are on the rise nationwide. Overall, four out of five conventional loans and over half FHA loans and VA loans were dedicated to refinances last month, reports Freddie Mac Economist Frank Nothaft.
Is This The Best Time To Mortgage Refinance?
How can you determine if jumping through the refinance hoops is right for you? The best way to evaluate if you will have money through refinance is to divide the fees you’ll pay to refinance by the monthly amount of money you’ll save. The resulting number will tell you how long you’ll need to live in your home to recover from paying the necessary fees to refinance.
For families like the Cunningham’s refinancing made sense. “The money we saved from our original mortgage is substantial, plus we aren’t planning to move any time soon.”
So what must you do to qualify for a loan these days? Although it may seem like sacrificing your first born will be part of the application process, it isn’t nearly as painful.
Credit Score Importance
Before applying for a loan, check your credit score. Most lenders want to see a score of at least 740 before extending some of the lowest rates. Only a few short years ago a score of 680 would have been sufficient to qualify for a low rate mortgage, however lenders want stronger proof that borrowers have the means and track record to repay the loan.
A credit score of 740 may seem pretty lofty to many borrowers, however there are a few things you can do to increase your score. Obtain a free copy of your credit report through the AnnualCreditReport.com and review it with a fine tooth comb.
One of the best ways to boost your credit score is to review the report for inaccuracies or unresolved issues. For example, if a merchant reports that you were delinquent paying bills on time, however you have a record that all payments were made in a timely manner, you can dispute (and hopefully resolve) that claim which may boost your score. Check the report for updated reporting—some merchants may not have reported claim resolutions or pay offs, which impacts your score.
Also, if you share the same name as someone else, their credit history may be mistakenly reported to yours which may drop your score.
Full Documentation Borrowers Preferred
Borrowers with a solid income and who can supply full documentation of employment are also looked upon favorably for a loan. In fact some lenders are asking that borrowers not only verify income during application, but also before closing. These extra steps are built in as a knee jerk reaction to the days of “no income verification necessary” to obtain a loan. Today, lenders want to know that borrowers have the means to pay back loans and avoid foreclosure.
Underwater Borrowers Don't Qualify
In addition to examining the credit score and being employed, borrowers should also have their home appraised to determine if they are “underwater” in their loan. Because property appraisals have declined, many homeowners owe more than what their property is worth today, putting them “underwater.”
Although being “underwater” in your loan can make it difficult to qualify for refinancing, borrowers still have options. If your loan is owned by Fannie Mae, you can still refinance for up to 125% of the home’s value. Check the Fannie Mae website for more information about refinance options.
Borrowers are also encouraged to shop lenders to find the best fit. Take into consideration service and convenience when choosing the right lender. Visit MortgageRefinance.com section for Mortgage Brokers and Lenders in your area. Mortgage rate always plays into the equation, however look for a lender who responds to your requests within a timely manner and is helpful answering questions about paperwork. Some lenders will also work with you on establishing a road map to success if you don’t currently qualify for a loan. This road map may include strategies on how to improve your credit score and ways to save money for refinance fees.
Time may also be on many borrowers’ side. According to Freddie Mac’s July Economic and Housing Market Outlook, the average 30-year rate should remain below 5% for the remainder of the year.