Why Is It Hard to Refinance a Mortgage Right Now?
Reader question: “I keep hearing how hard it is to refinance a mortgage in the current economy. Why is refinancing so hard to do right now, and what can I do to make it easier?”
I don’t think it’s accurate to say that it’s hard to refinance in the current economy — at least not in every scenario. It’s not something we can generalize, because mortgage approval happens on a case-by-case basis. With that being said, it is harder for certain people to refinance their homes right now. There are several reasons for this, and they range from stricter underwriting guidelines to a decline in home values.
Refinancing is Hard for Some, Easy for Others
Mortgage lenders do have stricter guidelines for refinancing these days, and this comes directly from the housing and mortgage crisis we have experienced. For years, there was a huge push for homeownership, refinancing and other types of mortgage activity. In many cases, loans were extended to people who really should not have received them. This is partly what fueled our housing crisis and economic recession.
As you probably already know, the lending industry has tightened up its underwriting guidelines. This is actually a good thing, though many people don’t realize that right now. So here’s what it all boils down to for people who are refinancing their homes. It will be hard to refinance your mortgage if you have a bad credit score or a lack of equity. These are the two biggest factors that will determine whether or not you get approved for mortgage refinancing.
A Lack of Equity Makes it Hard to Refinance
In most cases, you will need at least 20% equity in the home in order to refinance. This creates problems for a lot of people who saw their home values decline when the real estate bubble burst. In fact, there are millions of Americans right now who owe more on their homes than they are worth in the current market (i.e., upside down on their mortgages).
Not only is it hard to refinance with little or no equity — it can be nearly impossible. There are certain government programs designed to help people in these situations, such as the Making Home Affordable Program. But it will still be hard to refinance if you lack sufficient equity in the home.
The Credit Score Side of Things
You also need a good credit score in order to make refinancing work for you. You need a good score to get approved for the refinance loan in the first place, but that’s only one part of the process. You also need good credit in order to get a good interest rate, and this is the key to refinancing success.
So if your score is too low, you won’t get a very good rate. And this can defeat the whole purpose of refinancing the home. This is another reason why it’s hard for certain people to refinance their homes. Their credit is simply too bad to make it work for them.
Here’s what you should take away from this article. While it’s harder for certain homeowners to get approved for refinancing, there are still plenty of loans to go around for well-qualified borrowers. If you don’t have very much equity in your home — or you have negative equity — then it’s going to be hard for you to refinance the property. Similarly, if you have a bad credit score you’ll have trouble getting approved.
But if you are solid in both of these departments, you should be able to succeed with the refinancing process.
Refinancing Process | admin | 
September 5, 2009 9:11 am
