If you've been wanting to obtain a mortgage refinance, but have been unable to get approved, now may well be the time to act. Certainly a lot of lenders think so, and here's why: refinance applications are down -- not because rates are high, but because there are fewer remaining borrowers with homes to refinance.
Lenders Easing Up
According to estimates from the Mortgage Bankers Association, 80 percent of the loans now outstanding have an interest rate of 4.5 percent or lower. Of the remaining 20 percent, many cannot be refinanced because the borrowers lack the credit, income or equity needed to pass muster with a mortgage application.
One result of this situation is that lenders have begun to reduce credit requirements in the search for refinance mortgage opportunities. For instance, Ellie Mae reports that the typical credit score for a loan application in September was 726, down from 743 in May 2013. Interest rates at the end of October were a touch below four percent for 30-year, fixed-rate loans.
However -- and this is a concern -- almost half of applications who try to refinance their mortgage are still not successful. Ellie Mae says that 64.3 percent of all purchase loans close versus 48.3 percent for refinance applications.
Improving Your Chance for Approval
What can be done to improve your odds?
Here are some questions to ask:
How old is your loan? If your loan dates from before May 1, 2009, is owned by Fannie Mae or Freddie Mac, and you have been making full and timely payments, you may qualify for a replacement mortgage under the Home Affordable Refinance Program (HARP).
Are you facing an economic hardship such as a loss of income or a sudden payment hike? If so you may be eligible for HAMP -- the Home Affordable Modification Program. The loan must have been originated before January 1, 2009 and you must be able to prove that you are experiencing a financial hardship.
Do you have more equity? In many major metro areas, home values have risen significantly during the past few years. This increase in property values means that applicants once frozen out of the market can now refinance, because they have enough equity to qualify for a new loan. Household equity nationwide has jumped from $16.95 trillion in 2006 to $22.94 trillion in the second quarter of 2014, according to the Federal Reserve. At the same time, mortgage debt has declined from $10.42 trillion to $9.37 trillion. That's an extra $6 trillion in equity, enough to create new refinancing opportunities for millions of homes.
HELOCs and a Mortgage Refinance
By any chance do you have an older home equity line of credit -- a HELOC? If yes, you might want to think about a mortgage refinance that eliminates such debt by refinancing both the HELOC and an existing first mortgage into one new loan with a lower rate.
What you're trying to avoid is an "exploding" HELOC, a HELOC which is in its "repayment" phase, a time when no more money can be withdrawn and you have only the remainder of its term in which to repay it -- payments can get very high in those circumstances.
For instance, if you owe $50,000 and must repay the debt over five years at six percent interest, the required payment would amount to $967 per month. Don't pay, and you could face what TransUnion calls an "elevated risk of default." In other words, your home could be foreclosed.
Finding the Right Lender
If your previous refinancing attempts have been unsuccessful, do not despair. Not all mortgage lenders have the same requirements. Even those who make FHA, Freddie Mac or Fannie Mae loans can impose their own (stricter) underwriting guidelines. The trick, then, is to find the lenders with less restrictive guidelines, and the best way to do that is to contact a lot of lenders.
For more information about a refinance mortgage, contact mortgage lenders today, while rates are low, borrower demand is largely absent and lenders are looking for business.