Refinancing May Not Be As Easy As You Think

Feb 7th, 2009 @ 8:21 AM by Alden Smith

Thirty year mortgages are continuing to hover around the 5% mark. This keeps interest in refinancing high. Even though many homeowners want to trade in their adjustable rate mortgages for fixed-rate loans or combine first and second mortgages to bring the payments down, we find that this is not always doable.

There are a lot of reasons why refinancing isn’t the best deal for a lot of homeowners. We see declining property values, record job loss, reduced income and legislative bodies that can’t make their mind up on what they want to do.

The reason so many homeowners are out of luck is quite simple. Basically, what it amounts to is the banks holding home owners hostage. A lot of reasons are given, such as low credit score, lack of equity, tighter lending standards, and a shaky job market.

If you think your house is worth more than it actually is, you’re in for a wake-up call. Property values dropped an average of 18% last year according to the Case -Shiller Home Price Index. A lot of homeowners are finding that their houses aren’t worth what they owe, and any equity that they had built up in the homes has vanished. If the equity isn’t there, or if there is negative equity, there is no possibility of refi. About the only way around this is finding a lender that will refinance without doing an appraisal. The Federal Housing Administration is currently doing a streamline refinance for its loans that don’t require an appraisal.

Another reason given is that your income is not sufficient to justify a loan. We see in California that government workers are being given days off without pay because of soaring budget deficit. Right now, everyone with a job is on shaky ground. It is little wonder that the banks are nervous. The American taxpayer has put out billions of dollars in bailout money to shore up the banks. Now that this is happening, banks are sitting tight on that money to make the ledger books look good.

With so many people out of work, you are unable to refinance unless you can show proof of other income, have a family member with a good job that will cosigned on mortgage documents with you. Even then, banks will look at your credit card debt, auto loans, student loans, and other unsecured debt. With the way the economy is these days, there are few people that aren’t relying on credit cards to keep them afloat. The bottom line is your debt to income ratio.

The lenders are also requiring a higher credit score in order to get the best interest rate. Scores of 720 or even 760 are not unusual these days.

President Obama is working very hard to pass a stimulus package. He is facing a great deal of opposition from the other side of the aisle. President Obama wants to pass this legislation by mid February. If he is able to do that, we’d then face a wait and see position. We all know the wheels of Washington turn slowly. Let’s hope that they move quickly enough before we begin to see tent cities popping up all over the country.

Posted in Mortgage Refinancing, Mortgages
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