Why Your Refinance Bubble Might Burst

If you have been following the home finance sector, it wouldn’t come as a surprise that mortgage rates are heading north. The climb is gradual but sure footed, making long term homeowners reconsider their financing strategy. Most of them are opting for refinance since it offers significant savings and lowers the burden of monthly payments. However, some homeowners haven’t been able to get their refinance application approved. If you are one such disappointed homeowner or find yourself the verge of applying for refinance, please read the following:

You Have Not-Too-Impressive Credit History

This is an open secret—lenders want to lower their exposure to risk. So they prefer people with solid credit histories. Mortgage lending follows this tradition too. A credit score defines your ability to pay back in the long term. Credit score expectations might be relaxed for the usual, purchase loans, but the housing sector is a different game all together. Your credit scoring is also affected by your choice of refinance, i.e. a VA or an FHA loan. Some loan programs are very strict about the credit score while some don’t think of such scores as a serious eligibility condition. However, the lenders, the folks who actually issue the loans are always on the lookout for better credit profiles.

You Have Over-compromised Your Home’s Value

If you owe much more than the current market worth of your house, a lender is less likely to offer you a mortgage—this is totally relevant for traditional lenders. They don’t refinance homes that are supposedly under the water. Recently, the government introduced some unique refinance schemes for distressed homeowners. However, such programs are numbered. They might not be available in your state. Still, it is better to check through popular refinance programs, like the HARP—Home Affordable Refinance Program. Homeowners can apply for refinancing their Freddie Mac and Fannie Mae loans here.

You Have Substantial Mortgage Insurance

Mortgage insurance continues to test the conventional mortgaging wisdom. Traditional lenders treat it as an additional liability. This is more relevant if the insurance is being paid by the mortgaging firm. More issues persist if the federal government’s HARP program mortgage is involved. The restrictions might have been relaxed by some lenders, but overall mortgage insurance presents a major deterrent to refinancing.

You Don’t Earn Enough

Yes, the economy is progressing, but salaries are still under stress. A recovery is in motion as businesses are hiring more, but the packages on offer, even for experienced and skilled workers, aren’t very inspiring. So, be guarded in how you spend. Not earning enough and paying through a pile of bills can damage your evaluation for a refinance. Lenders too are recovering from the hammering of the economic downturn. Mortgage providers are digging deeper into borrower profiles. Weekend jobs or any type of supplementary income can also work in your favor. Even a handful of mortgage non-payments can work against you.

You Have Jumbo Liabilities

Homebuyers who have spent a fortune on their new residences are at a bigger risk of not qualifying for refinance. Big-property owners often take jumbo loans. These aren’t the safest bet in the lending industry. The slightest indication of a downswing in property rates in the neighborhood can leave such homeowners without any conviction for a refinance.