1. It is just too hard to get a loan. The fact is for some time lending guidelines were just too easy. Today's guidelines have moved to a place that really does make sense. Qualified borrowers are finding the process to be reasonable and streamlined. The restrictions that have been put in to place are good for borrowers and for the banks making the loans.
2. I'm waiting for rates to go down. Right now rates are the lowest that they have ever been. Although it is possible rates could go down more it is unlikely. The Federal Reserve has indicated that they will be holding rates down for a period of time in order to help stimulate the economy but today's low rates are not going to last forever.
3. Since home values have dropped my loan would be above 80% so I would have mortgage insurance. Many borrowers qualify under the new HARP refinance program. Under HARP guidelines if you do not have mortgage insurance now you would not have it with the new loan. With rates now under 4% it is an amazing time to refi.
4. My credit score is just too low. Your credit score is not the only criteria the lender looks at. Often there are compensating factors that can mitigate a low score. For owner occupied homes refinances are available with scores as low as 620.
5. A refinance is just not worth the expense. Maybe true, maybe not. It is a simple calculation to determine the “recapture” time for the refinance. If your payment goes down $200 per month and the cost is $2,000 then $2,000 (cost) divided by $200 (monthly savings) equals ten months for recapture. If you plan on owning the home more than 10 months then it makes sense. Right now Northstone Mortgage is closing refinance loans with costs averaging in the range of $2,000 including all closing costs. *
6. My debt to income ratio is too high so I think it is likely I won’t qualify. Again this is a case by case decision taking into account multiple factors. I am seeing some high debt to income ratio loans get approved but when it makes sense. For example a borrower who is current on all of their obligations and having their monthly housing expense reduced is a “makes sense” loan with a high probability of getting approved.
7. I was on unemployment so my income was interrupted so I don’t think I can qualify.
If you are back to work in the same line of work this is easily covered by a simple letter of explanation and a verification of employment from your present employer indicating that continued employment is likely.
9. As soon as values come up I am selling so I don’t want to spend the money on a loan that I am paying off soon. Again, good point, however if you are waiting for values to rise it could be a long wait. Goldman Sachs released a report recently indicating that they do not believe we will see house values return to 2006 levels before 2023… that’s not a typo. It goes straight to the recapture question discussed in myth 5 above.
10. I have a second mortgage that I want to keep. I have been told that if I refinance I will have to pay it off and close the account. This one is sometimes true but usually not. Most of the time we can do what is called subordination. The way loans work is that when you close the loan you sign a promissory note which is your promise to pay the loan back and you also sign a deed of trust which is a document that is a lien on your home securing the promissory note. Each deed of trust is in lien priority based upon when it is recorded. When you pay off your existing first mortgage your second mortgage would then become the first lien UNLESS we ask the second lien holder to allow the new mortgage to be in first lien position or “subordinate” to the new first loan.
These are questions and concerns that I have been hearing from borrowers I have been recently serving. If you have questions about your specific situation please let me know. I am pleased to help any way I can. Usually the only way to learn if a refinance is a good idea is for us to “run the numbers.” There is no charge for this service.
*These fees are based on zero point loans with the lender paying the loan origination fee. Call for a free quote based upon your specific needs and situation.