There are several common homeowner refinancing obstacles. The biggest problem is, most homeowners simply don't know about these -- until after applying. One reason homeowners are unaware such hurdles is because of a very common misconception. It's the widely mistaken belief refinancing is some type of modification of an existing mortgage -- it isn't. When you refinance, you are actually applying for a completely new home loan (although there are different factors).
Common Homeowner Refinancing Obstacles
The most common homeowner refinancing obstacles are shared by first time or second time home buyers. Right now, most of the activity in the mortgage lending sector is refinancing, Market Watch recently reported. The reason is obvious -- interest rates remain at near historic lows. However, there's ample evidence rates will be raised soon. Atlanta Federal Reserve chief Dennis Lockhart said a "serious discussion" is needed regarding rate increases just last week.
The lowest mortgage interest rates in decades have sent thousands of homeowners eager to refinance their home loans scurrying into lenders' offices. Many leave empty-handed and upset. A multipronged whammy of lower home values, new appraisal guidelines and tighter lending requirements frequently derail consumers from snaring loans at lower interest rates. Lenders say they are closing 60 percent to 70 percent of refinancings. --Chicago Tribune.com
If you are considering refinancing your home, you should know stumbling blocks can lead to delay or denial. For instance, if you refinanced in the past six months to a year, this will be at best, problematic. Or, if the property is no longer your primary residence, that too, will at least complicate the process. But, the list certainly doesn't end with these two scenarios. Here are some of the most common homeowner refinancing obstacles:
- Debt-to-income ratio. This is one of the most important factors lenders consider with financing large loans. Ideally, your debt-to-income ratio should be well under 43 percent, according to the Consumer Financial Protection Bureau. This is the amount of your debt obligation relative to your income. If you have a high DTI, you are unlikely to qualify for refinancing. It's best to have a DTI of 33 percent or under and this can be accomplished by paying off debt.
- Low to mediocre credit. Even if you pay your mortgage on time, every time, if you are behind on other loans or have delinquent loans, your credit score will be negatively affected. So, if you have a low to mediocre credit score, this will play a significant role in your ability to qualify. Be sure to check your credit reports from all three bureaus and dispute any inaccuracies by snail mail.
- Too little home equity. If you have a small amount of home equity, this will also present an obstacle to refinancing. There must be ample equity in the home to refinance your property. But due to the lingering effects of the housing bust, this could be a substantial factor in your ability to qualify.
- Closing costs. Because refinancing is getting a new home loan, you'll receive a lower rate and possibly switch to a shorter term, like a 30-year fixed to a 15-year fixed. But doing so means incurring closing costs. Some lenders allow you to roll said costs into the new loan but be sure to read the fine print. Even if there are no significant charges, you'll pay more interest over the term of the loan.
- Employment history. Just like applying for a mortgage for the first time, when you refinance, your employment history will be a large factor. So, if you recently changed jobs or (worse) changed careers, this will be a concern to lenders.
If you are considering selling or buying a home in or nearby Dreaming Summit, whether it’s around West Missouri Avenue, North Dysart Road, West Camelback Road, or elsewhere in the city of Litchfield Park, we are here to help.