Friday, January 16, 2009

Refi Problems

While mortgage rates may be a historic lows the screening that lenders are doing are stricter than ever. During the bubble the requirement was basically a pulse - with liar loans, NINJA (no job, no income, no assets) loans - the lenders were eagerly giving money away.

Afraid to get caught holding the bag again they are enforcing the strictest terms possible. Although we are in a refinancing frenzy the applications terms have drastically changed since the bubble burst. In USA Today there is an article titled Not everyone can refinance to cut mortgage payments which outlines the new requirements. As shown, a pulse is just one of many requirements. Lets take a look -

To get the lowest rates, you'll need a FICO credit score of 720 or higher, says Cameron Findlay, chief economist for LendingTree, a loan-comparison website.

Ideally, you should have at least 20% equity, based on your home's current appraised value, says Keith Gumbinger, vice president of HSH Associates, a publisher of mortgage and consumer loan information. Most lenders will require an appraisal before refinancing your loan, and if the value of your home has dropped, you may be unable to refinance, or decide it's not worth the trouble.

If you have a home equity loan or line of credit, you'll probably need to pay it off before refinancing, says Bob Walters, chief economist for Quicken Loans.

Borrowers in high-cost areas may not qualify for the lowest rates, even if they have outstanding credit, lots of equity and no second mortgage. That's because the interest rates for loans that exceed $625,000 — known as jumbo loans — have remained high. The average jumbo rate is 6.8%, according to


Banks and other financial institutions laid off thousands of workers last year, leaving many unprepared for a sharp rise in mortgage applications. That has led to a logjam in processing applications. Some borrowers are having a hard time getting their lenders on the phone.

So stricter requirements, more applications and less staff. While we have advised people to apply, this is a good guideline to make sure you have your things in order to make sure you will qualify prior to the application.


JM said...

I talked to a mortgage person yesterday about a refinance. He gave me some ballpark numbers of $2500 in closing costs (plus whatever escrow payment I'd need) for approximately $225k at 4.875% for 30 years, no points. He also told me FICO had to be at or over 740 - shocking because one late payment on a forgotten store card can do some damage to a credit score.

NJHH said...

That sounds like a great closing cost - compared to the others we have seen. Good luck!

Also wonder how high the credit score rate will go to - up from 720 to 740. Another 20 points if things get even tighter?