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When to Refinance? 10 Reasons You Haven’t

when to refinance
Many homeowners today still haven’t tried to refinance despite the good things that have been happening: Interest rates at 60-year lows have granted millions to refinance; mortgage rates have decreased systematically for a while allowing homeowners to refinance more than once.

These are the 10 reasons why a lot of homeowners haven’t refinanced yet and the things they can do if they plan to refinance:

Reason No. 1: Your Credit Score

This is the primary factor mortgage lenders will first look at whether you are purchasing or refinancing. If your credit score doesn’t reach at least 740, there is still a chance for refinance but the fees and the rates will be probably be less favorable to you since 740 is the optimum score one must have to land an excellent refinance – in rates and fees.

What to do:

Well, if your credit score doesn’t meet the minimum required score for a conventional refinance, take a chance with the FHA (Federal Housing Administration). You only need a minimum credit score of 580 for FHA-backed loans while some lenders often add overlays adding up to a minimum score of 620. But, you better go at it quick because FHA is bound to make changes and this year FHA loans are going to get more pricey and difficult to acquire.

Reason No. 2: Lack of Equity

Six years ago, the difference between the market value of properties and the claims held against them was so huge that it caused a housing crash; and people can still remember its effects up to now. When home prices crashed , many properties went underwater and homeowners weren’t able to get back the equity they lost. Commonly, lenders have the bargaining advantage if there is a lack of equity. Now, homeowners may have a bit of an edge even if they have little or no equity.

What to do:

There are government programs designed to aid those homeowners whose properties are underwater. One of these programs is HARP or Home Affordable Refinance Program and unlike conventional refinance, it does not restrict underwater homeowners to qualify. Harp is a voluntary program so lenders can add conditions as they deem fit to your qualifications. Say, a lender will only refinance as much as 115 percent, you are better off looking for another refinance no matter how underwater your property is.

Reason No. 3: The mortgage insurance

With the recent decline in home values, you must still be paying your mortgage insurance now and will still be for a long while. In case you aren’t aware, you are paying the mortgage insurance policy of your lender if when you purchased your home, you gave less than 20 percent down payment. Furthermore, refinancing is going to be tough because of your mortgage insurance.

What to do:

HARP is not that strict about mortgage insurance so whether you have one or not, you can still pretty much qualify. If you did not have a mortgage insurance in your original loan, your new loan won’t have a mortgage insurance too even if the loan’s LTV is beyond 80 percent. On the other hand, with a current loan that has a mortgage insurance, the new loan must have it too with the same amount for coverage – this is where it gets troublesome. If you are a mortgage insurer, you’ll avoid risks and will be unwilling to add new policies on HARP refinances. Keeping your current policy and using your current lender is what an insurer will do. Most lenders will not participate in the program or offer a lower rate.

Reason No. 4: Your debt-to-income ratio is way too high

Many people rely on credit cards and homeowners are no different. A common homeowner problem is maintaining the current mortgage and house in place; and because of this, debts can accumulate over time. Your debt gets higher than your income – a high debt-to-income ratio. So if you have been refused a refinance once and you have a high debt-to-income ratio, don’t wonder.

What to do:

You’ve got two choices, but you will have to wait a bit to be able do to them. One, earn more money – which is easier said then done. Two, start merging and paying down your debts, the sooner the better.

Reason No. 5: You got a low home appraisal

If you’ve got a low appraisal, your application for a refinance can get called off. It will be really frustrating were you ready for a refinance and your home appraisal gets in your way. But you should know that a low appraisal doesn’t entail that your property was inaccurately evaluated. Low appraisal can only mean one thing, you may get denied of your application.

What to do:

Try re-discussing the terms of the deal, this certainly is the best approach rather than challenging the low appraisal. You can also request for another appraisal or even pay extra to make up for the low value.

Reason No. 6: Thinking that you are too old

Yes, age is also a factor to consider when deciding to refinance or not. One may think that refinance is not worth it particularly those who are nearing retirement or are already retired. But ultimately, it all comes down to what’s best for you.

What to do:

When getting older, you can choose shorter-term loans. This way, you can pay off your loan by the time you retire or after that. Another option when deciding to refinance is to get a new 30-year term loan if your retirement savings are at the lower limit. This may be quite a nice idea if you aim to invest additional savings for your retirement and use the investment for fully paying off your mortgage later.

Reason No. 7: You think your current income won’t qualify

The fact that your loan is current is a general necessity when looking to refinance. Just because you have a lower income status doesn’t mean that you can’t refinance. So long as you manage to keep your loan current, you can qualify for a refinance.

What to do:

Your in luck because there’s a program that doesn’t require you to present a proof of your income. This program is the expanded HARP 2.0 program; it only needs a proof of employment and that you pay your monthly mortgage payments promptly. This program is a streamlined refinance via Fannie May or Freddie Mac; those who have Fannie or Freddie-insured loans at at-least 80 percent loan-to-value ratio can avail this. See, paying your payments on time can help you a lot in your application.

Reason No. 8: Simply can’t afford refinancing

Typically, a refinance will cost you more or less 2 percent of your loan amount. Refinancing can be costly, you’ll be needing at least a few thousand $$ in order to pay for the closing costs, appraisal fees, credit checks, etc. Yes, it’s expensive but don’t rush to conclusions for you may still have a shot at this.

What to do:

Clean water isn’t free, food isn’t free, clothing is the same – almost everything in life has a price. Remember all those TV advertisement saying something’s free with the additional “…with every purchase of…”, one way or another money is often involved and mortgages are the same. Even the “no-cost” refinance loans cost some amount of money, lenders will charge you with a higher interest rate to make up for the “no-cost”. Why not try? Even if refinancing costs quite a lot now, you can benefit from it in the long run.

Reason No. 9: Your income and assets can’t be documented

Being able to supply references of your income and assets are as important as your credit score and home value when seeking an approval to your refinance application. You will be asked to present pay stubs, asset statements and deposit and tax forms’ documentation by the mortgage lender.

What to do:

If you are self employed, you will have to show a uniform income pattern as lenders will want to see this. However, having a self-employed history of less than two years, you won’t be able to utilize your income for your requirements. Business owners are one of the examples of self-employed. But, say for an instance you have a cash business and you have no means to decently documenting your income, you will probably have to decline the idea of refinancing.

Reason No. 10: You think it’s not worth it

Seemingly unending paperwork when applying for a new loan, and add to that the strict lending conditions – today, refinancing is sort of a daunting task so consider yourself lucky if you meet anybody who thinks that refinancing is enjoyable. This is precisely why numerous homeowners decide not to push through the idea of refinancing. It’s either not worth the effort and time or the loan amount is comparatively little, or your loan’s duration is nearing its end.

What to do:

Before deciding abrasively that refinance is not for you because it’s way too exhausting both mentally and physically, search for the streamline programs which you can avail. Streamline refinance is a much simpler and faster way than the regular refinance, and it just might change your mind.


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