Refinancing in Today's Market

By Sheryl Landrum
Home Worth Columnist

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Mortgage underwriting guidelines have tightened in the last year, making it harder for borrowers to qualify for new home loans. On the flip side, however, interest rates are low for first mortgages as well as home equity credit lines and home equity loans, making it a good time for a new home loan. What you should know if considering a home refinance or purchase in today's market?

Full Documentation Means Quick Qualifying for Your New Home Loan
In order to stem the tide of home foreclosures, lenders have increasingly tightened the guidelines they use to qualify borrowers for new home loans and refinances of existing mortgages. One key way lenders have changed is by tightening their stated income practices. When guidelines were looser, borrowers with good credit could reasonably state their income without proving it; now, however, borrowers who get W-2s should be able to prove and document their income and assets before qualifying for a home loan.

Credit Is Still King When Refinancing
Having good credit is even more imperative in today's market. Lenders love to see credit scores over 720 when considering approval for new home loans. If your credit can use some improvement or you simply want to maximize your credit potential, talk to a loan officer about the ways you can improve your credit scores.

Your Home Equity Means More in Today's Market
If you have 20% or more home equity in your house, breathe a sigh of relief. Lenders don't like financing 100% anymore and most are looking at zip codes to see if the houses they are refinancing are in stagnant, declining, or depressed areas before agreeing to refinance the properties. Unfortunately for many existing homeowners, declining property values have given them loan-to-value ratios that are too high for most lenders to consider. If you have home equity, now may be the perfect time to refinance before house values drop even further.

While there are negatives for borrowers who are trying to refinance their homes or to purchase new ones, there are positives as well. Interest rates on home equity lines and loans are continuing to go down as the Federal Reserve cuts the prime rate and we should also see an increase in the conforming loan limit shortly. The increase in conforming loan limits should offer a good reduction to the interest rate that borrowers with jumbo loans, those loans over $417,000, are currently being offered. Borrowers should also realize that while home refinancing and home ownership may be more restrictive than in the past, it is also more secure as lenders are more careful to ensure borrowers can afford the home loans they receive. Talk to a trusted lender today if you are considering a refinance or a new home purchase to see if the time is right for you to move forward with a new home loan.

About the Author
Sheryl Landrum is a Senior Loan Officer with First Capital Mortgage of San Diego at the Prudential Realty Office in Bonsall, California.