This week, national mortgage rates dropped again, with 30 year fixed rates averaging 5.13%, down from 5.26% last week. 15 year fixed rates also dropped from 5.01% to 4.79%. While the ARM's and jumbos also declined, they are in the 6% range. (source: Bankrate.com). Along with the infusion of megacash (yours and mine) into our financial institutions, it appears that the Feds are making it quite attractive to borrow money again, whether it be a mortgage or refinancing your existing mortgage.
It's more than that though. These deliberate actions by our Government (lowering the interest rates and providing liquidity to banks and other lenders) were done for the specific purpose of getting the economy moving again. The belief is that if you lower your monthly mortgage payments, you will have more money to spend in other parts of the economy (shoes anyone?). Or in the worse case scenario, you can avoid foreclosure.
Refinancing your existing mortgage then, can be viewed as your patriotic duty, right? Not so fast though.
Here's our anecdotal tale of one person's attempt to refinance. We have this friend, Pete. He lives in our hometown, owns his own home with mortgage, own business and has savings. He wants to do his bit to support our country. Pete talked to several banks and mortgage brokers in our area. In order to even be considered for a refinance loan, Pete will have to provide all of the following:
1. an income stream: this means a job or other provable source of income,
2. net worth: this means more than the existing equity in your home. It means an investment portfolio or savings account!
3. a great credit score: just like the math portion of the SAT's, anything 720 or higher, and,
4. your home has to be worth more than what you are looking to borrow!
These seem simple enough to provide on paper, but a closer examination of each will show how difficult it may be to actually refinance.
If you have recently lost your job or have a job that is dependent on commissions (like real estate for instance) or have even started your own business, you may have an actual need to lower your monthly mortgage payments in order to pay your other bills. Yet, you won't be able to provide your lender with an established income stream, thus, preventing you from refinancing. We have been told that you will have to show two years of income in order to qualify.
If you have your money in the stock market, you have probably seen your portfolio plummet in the past several months. Is there enough to satisfy your lender?
If you haven't done so recently, check your credit reports. You are entitled to examine your credit report annually, at no charge. Go to www.annualcreditreport.com or contact the reporting agencies directly to obtain your reports. These agencies are Transunion, Equifax and Experion.
Finally, it is possible your home might not be worth what you paid for it, especially if you purchased in the past few years. Ask your realtor to recommend a reputable appraiser evaluate your home. If you can afford it, it's a good idea to have this done before you begin your refinancing application process. Then you will have something to compare with the lender's appraisal. As a caveat, we have been told that in order to qualify for a refinance loan, you will have to have at least twenty percent (20%) equity in your home. While you are talking with your realtor, ask her for a list of what homes have sold in your neighborhood in the past month. This is the same list that the appraiser will be working from when determining your home's value. Recent appraisals only look at sold properties in the past month as opposed to the 3/6 month time frame used a few years ago.
In order to figure out if refinancing is your best move, it is essential that you talk personally with your lender in order to get the exact figures you will need in order to refinance.
Don't forget to find out about the closing costs too. We have been told that these charges can total in the thousands. If you are planning on selling your home in the next couple of years, you will have to determine whether you will be saving money after paying the closing costs. Ideally, the lender that currently have your mortgage with may have a lending program that offers lower closing costs. It might be in your best interest to inquire.
As for our friend Pete, he was able to successfully refinance! God Bless America!
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