It may be harder than you think.
Some banks are refusing to refinance mortgages because they want borrowers to pay off loans and clear up shaky bank balance sheets. Today, you may be rejected no matter what your qualifications.
What you can do to help the process?
- Determine an accurate value of your home. True value drives the refinancing process.
- Go to Making Home Affordable to find out if your loan is owned by Fannie Mae or Freddie Mac. If they own your first loan, that works in your favor.
- Protect your credit score. Make all payments on-time. Get your balances down. You know the drill. Poor credit makes the process even more difficult.
The Obama administration is on your side. New policies encourage banks to be flexible and support the new programs that are designed to aid you and the housing industry. However, the banks are still needing to remove debt from their balance sheets so many of them are still not as flexible as you may need.
There are statistics showing as much as a 40% decrease in refinancing approvals for people who should be able to refinance. Most banks have money to lend, but they’re not.
In the past 5 years, many buyers applied for and received adjustable rate mortgages, ARMs, to help them afford their house payments. These buyers started with low payments for a term of about 5-7 years. Most expected to refinance with a permanent or fixed rate loan before the ARMs adjusted upward. Refinancing would avoid payment increases of potentially hundreds of dollars per month.
Problem is, most homes have not appreciated or paid down enough over the past 3-4 years for the banks to be willing to refinance. Often times, with the cost of the refinance rolled in, the buyer ends up owing more than their original loan. When this is the case, the banks end up turning them down.
And, even if the first loan holder will refinance, the second has to approve the new loan before it can go through. If the payments on the first go up or the loan amount on the first is not reduced significantly, the second will probably not be willing to sign off.
Now is the time to contact your lenders to find out what you need to do to refinance. Get everything in order and do all you can before your interest rate begins adjusting.
