By Lynn Adler
NEW YORK, Oct XX (Reuters) – Want to refinance your mortgage and lock in the lowest loan rates on record but hear horror stories about banks who don’t want to lend?
The hurdles are likely much higher than last time you borrowed, so here are some tips to increase your shot at getting your application approved.
Go to your lender already armed with paperwork. You’ll need pay stubs or other proof of wages, income and asset statements, and credit card documents.
A sound property value estimate will go a long way.
“The onus today is upon the borrower,” says Keith Gumbinger of mortgage research firm HSH Associates in Pompton Plains, New Jersey, who calls the process daunting. “Unlike just a couple of years ago, you absolutely must prove you are the borrower you say you are, and your property must prove that is has the valuation that you claim it does.”
This may mean getting several appraisals, and checking various real estate web sites for comparable recent sales in your neighborhood.
With sales slow and foreclosures high, assessing value can be a tall order.
Peggy Abkemeier, president of Rent.com, an eBay company in Santa Monica, California, said she needed to convince her bank to go outside of her neighborhood to find a recent sale similar to her condo in a new building.
“The credit wasn’t a problem, it was the appraised value, it was getting comps in the area that supported the appraised value, it was the process just being different,” she said.
She got the loan done at the end of 2009 and could cut costs again by refinancing that 5 percent loan now. “But I don’t want to go through all of that again,” without savings much greater than 1/2 percentage point, she said. “I felt like I had to sign over a first-born.”
Abkemeier suggests getting the last three bank statements from each of your active accounts and being prepared to explain any large transfers, compiling income statements and original purchase or prior refi papers, and paying down credit cards.
Getting income and asset records together is especially important if you are self-employed. The more documentation you have, the better, experts say. Banks who freely lent before the housing crash now want more proof of consistent cash inflows.
Confirm your credit score. Average mortgage rates may have never been lower, near 4-1/4 for 30-year loans, but you may not qualify for the best rates unless you have stellar credit.
A FICO score of 720 is the “break-even point” for the best rates, Gumbinger said. Fees are tacked on below that grade, and may cut the value of refinancing.
Go to annualcreditreport.com for a free annual consolidated credit profile and also check myFICO.com, he suggests. Find any errors and fix them before starting the process, to avoid surprises that delay approval.
Shop Around. If one lender turns you down, try another.
“Certainly go back to your current lender, but if there’s not an opportunity there, there are still a large number of originators who want to solve the problem,” said Michael Fratantoni, vice president of research and economics at the Mortgage Bankers Association.
Some lenders are more willing to work with self-employed workers with more documentation challenges than others, for example, several experts said.
If your loan is more than 80 percent of the value of your home, you’ll likely to need mortgage insurance. Refinancing might not be worth the cost in that case, Fratantoni said.
Cashing in instead of cashing out can make the difference. “Borrowers should consider bringing additional equity to the table,” or cashing in, rather than refinancing for an amount larger than the mortgage, which is cashing out, he said. Almost one quarter of borrowers who did refinance in the second quarter cut their principal balance by paying more money at the closing table, matching the third highest cash-in share in records dating back 25 years, Freddie Mac said in July.
Gail Cunningham of the National Foundation for Credit Counseling in Silver Spring, Maryland, said there may not be any “magic bullets that will guarantee approval,” and has heard of consumers with a year’s income in the bank who have been turned down for a refinance loan.
It stands to reason that a lower monthly payment for borrowers who make timely payments — even “under water” owners owing more mortgage than the home’s value — would only reduce the risks, she said.
“It might be just the incentive they need to stay in the home and not walk away,” she said.
By Lynn Adler
Peggy Abkemeier, president of Rent.com, an eBay company in Santa Monica, California, refinanced her mortgage last year. And because interest rates are so low, she could cut costs again by refinancing that 5 percent loan now. “But I don’t want to go through all of that again” without savings much greater than 1/2 percentage point, she said. “I felt like I had to sign over a first-born.”
Want to refinance your mortgage and lock in the lowest loan rates on record but hear horror stories about banks who don’t want to lend? The hurdles are likely much higher than last time you borrowed. Gail Cunningham of the National Foundation for Credit Counseling in Silver Spring, Maryland, said there may not be any “magic bullets that will guarantee approval,” and has heard of consumers with a year’s income in the bank who have been turned down for a refinance loan.
Here is a checklist to increase your shot at getting your application approved.
Go to your lender already armed with paperwork. You’ll need pay stubs or other proof of wages, income and asset statements, and credit card documents. Abkemeier suggests getting the last three bank statements from each of your active accounts and being prepared to explain any large transfers. You will also need to compile income statements and original purchase or prior refinancing papers. If you have paid off credit cards, bring that paperwork, too.
Are you self-employed? Getting income and asset records together is especially important. The more documentation you have, the better, experts say. Banks who freely lent before the housing crash now want more proof of consistent cash inflows.
A sound property value estimate will go a long way. “The onus today is upon the borrower,” says Keith Gumbinger of mortgage research firm HSH Associates in Pompton Plains, New Jersey, who calls the process daunting. “Unlike just a couple of years ago, you absolutely must prove you are the borrower you say you are, and your property must prove that is has the valuation that you claim it does.” This may mean getting several appraisals, and checking various real estate web sites for comparable recent sales in your neighborhood.
Confirm your credit score. Average mortgage rates may have never been lower, near 4-1/4 for 30-year loans, but you may not qualify for the best rates unless you have stellar credit. A FICO score of 720 is the “break-even point” for the best rates, Gumbinger said. Fees are tacked on below that grade, and may cut the value of refinancing.
Go to annualcreditreport.com for a free annual consolidated credit profile and also check myFICO.com, he suggests. Find any errors and fix them before starting the process, to avoid surprises that delay approval.
Shop Around. If one lender turns you down, try another. ”Certainly go back to your current lender, but if there’s not an opportunity there, there are still a large number of originators who want to solve the problem,” said Michael Fratantoni, vice president of research and economics at the Mortgage Bankers Association.
Some lenders are more willing to work with self-employed workers with more documentation challenges than others, for example, several experts said. If your loan is more than 80 percent of the value of your home, you’ll likely to need mortgage insurance. Refinancing might not be worth the cost in that case, Fratantoni said.
Cashing in instead of cashing out can make the difference. “Borrowers should consider bringing additional equity to the table,” or cashing in, rather than refinancing for an amount larger than the mortgage, which is cashing out. Almost one-quarter of borrowers who refinanced in the second quarter cut their principal balance by paying more money at the closing table, matching the third highest cash-in share in records dating back 25 years, Freddie Mac said in July.
Caption: Helen Ramos of Fairfield, California, listens to an advisor during a counselling event for homeowners applying for mortgage modifications in Oakland, California, August 13, 2010. REUTERS/Robert Galbraith
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In NJ the lender picks the appraiser no ifs ands of buts, just keep that in mind before spending unnecessary money on appraisers. However I do agree, do your homework with comps
I am a mid-50′s single woman in southern Ohio and I am extremely frustrated with my attempts to refinance the home I’ve lived in for 25 years and took over sole ownership following a divorce 10 years ago. I qualify for the Making Homes Affordable program, have a 780 credit rating, the house appraised very high, and though I was laid off from a full-time job in December 2008 I have NEVER been late on a bill or my mortgage. With rates down, I applied for a refinance with a relative who works for an area savings and loan who felt there would be no problem getting a 30 year fixed refinance approved. After paying $250 for the appraisal, the loan was turned down because I have been working for a company since Feb. 2010 on contract – not my choice – the employer keeps me on contract rather than hiring me fulltime. I gave the S&L a list from the employer’s finance dept. of all my paychecks from 2/10 to the present as well as my income tax returns, paycheck stubs etc. After first turning it down, my relative went back and re-presented the documents and they offered me a 1-year adjustable loan – which I do not want.
I then decided to go back to 5/3 Bank where the home is now financed – they would not return any of my calls prior to this. (I might add I’ve been a very good customer of theirs for 42 years!) I finally spoke with a loan officer who took all my information and asked for $300 up front application fee – and like the S&L to whom I paid $250 – it is not refundable should the refinance not go through. He tells me I have a 75% chance of getting the loan approved due to the fact that I am a contract worker and do not have a W2 statement from my present employment. I have enough in my retirement to pay the home off in full if it came to that and a lot of equity in my home so, for the life of me, I do not understand the difficulty in getting the refinance.
I thought the Making Homes Affordable program was to help people in my situation (laid off at middle age, single and not having found a sustainable income full-time job). I do not understand why the bank will not help me by lowering the rate on a refinance of a loan they already hold! They are, however, more than happy to take my $300 non-refundable application fee (even sent me an email BEFORE I received the documents saying they’ll take the $300 out of my checking account). What a racket!!!!
Thank you for providing a space for me to vent. It seems that in this economic climate, there is no reward in being a responsible, bill-paying, working however you can, adult citizen. The banks and savings and loans are making a fortune just on turned-down loan application fees! If I’m missing something here, please let me know!