We are over the credit crisis in America. But that does not mean that typical Americans don’t have credit challenges. And these challenges could prevent a homeowner from refinancing at a lower rate when the opportunity arises.
Low rates mean that many homeowners can save significant sums by refinancing their present loans. The problem is, many consumers are getting “shut out” from taking advantage of these lower interest rates. A previous study by Credit Suisse revealed that only 38% of Americans qualified for a refinance. Why? Because the financial crisis has also brought tighter lending guidelines. Many who purchased homes in the past five years can’t even qualify to refinance these homes. We would like to help you take advantage of these low rates and not get “shut out”. We mentioned tighter qualification guidelines. What does it take to qualify for a mortgage at a lower rate?
Credit. A good credit score is a prerequisite. During the real estate boom just a few years ago, lenders had programs for anyone of any credit level. Tighter guidelines caused those with moderate credit issues to pay more and those with severe credit issues perhaps not to get approved at all. Typical credit scores range from 500 (poor credit) to 800 (great credit). Just a few years ago, someone with a credit score of 680 was considered moderate credit and was not asked to pay more. Now many lenders are charging premiums for this “moderate” credit score. If a homeowner has a credit score below 620, they may not get approved at all and, if they do, the premiums they could have to pay could eliminate most or all of their savings. The good news? Just a few years ago, many could not refinance with scores higher than 620 and today your lender can help you eliminate mistakes on your credit report and put you on a path which can help you raise your score.
Income. Income is also another issue. It makes sense that lenders would verify that you have enough income to make sure you can repay the mortgage. But again, during the real estate boom years many lenders did not even ask for income data or let borrowers qualify at very low adjustable rates even if the loans were likely to adjust upward very quickly. Once again, lender tightening took away options for those who do not make enough income to pay for loans. It is a “catch-22” because refinancing at lower rates will help consumers afford their payments and avoid foreclosure. Today, programs are starting to get more lenient by allowing co-borrowers and enabling excess assets to be counted towards income.
Debt Levels. Related to the measurement of income is someone’s debt levels. It is important to note that when a lender “qualifies” someone for a loan, that lender must look at all the payments a person is obligated to make, not just the mortgage. Americans have run up a significant amount of debt in the form of credit card, car and other payments during the past several years. And these debts are also helping to prevent qualification for low rates. Again, this trend has been reversed more recently with many American’s paring down the debt they owe.
Home Value. Finally, another issue may prevent qualification. That is the value of the home. Many lenders have been more restrictive on the amount of the loan they will approve versus the value of the home. The mortgage divided by the value is considered the “loan-to-value” (LTV). During the boom, LTVs at 100% (or no money down) were proliferating. Now these programs are scarcer. Therefore, even if you have good credit, adequate income and a small amount of debt, if the home is not worth as much as what you owe, refinancing could be a challenge. Again, there is good news in this regard. The government has offered programs to help those “underwater” refinance and higher home values more recently have put many others in position to refinance. Plus, many homeowners have paid down their principal enough over time that refinancing is now possible.
Many American’s are facing these challenges. How do you take advantage of low rates when you have challenges? The first step is to work with a mortgage representative that will help you with more than obtaining a good rate. A representative can also help you with services that will increase your credit score, lower your debt load and even accelerate the repayment of your present mortgage so that you can refinance more quickly. In addition, they can give you access to special government programs which may help you refinance. Your mortgage representative can let you know if you might be eligible for these programs.
How quickly? Results will vary dependent upon your situation. For example, severe credit issues take more time to correct than moderate credit issues. The higher your debt load, the more time it will take to bring it under control. But one thing is for sure, you can’t take advantage of these historically low rates without taking the first step. And who knows how long these low rates will last. Contact us today and let us help you either obtain a lower rate now, take cash-out to pay off bills and/or get in position to obtain these benefits as quickly as possible.
