The times, they are a changin'. In the not to distant past anyone with still breathing and an existing home mortgage could get a refinance. It didn't matter if your credit was great, bad, or in between. It almost didn't matter if you had a job, since almost anyone could get a type of mortgage called a "No Doc" that required little documentation. Common wisdom was that home values would continue going up for ever, wouldn't they? All that appreciation would cover up any sins of the borrower or lender. If there was a problem a bit of equity could be siphoned off, or the home could be sold, and any losses could be recouped.
That was then. In 2008, the bottom has fallen out of the market for many people. Even those borrowers who were almost guaranteed a loan last year are having trouble getting one at all now. It's a bit of a paradox, much to the chagrin of would be homeowners or stressed-out ARM holders. There are truly fabulous interest rates to be had, and there is an abundance of value priced homes on the market in many communities. The problem is that it has become very difficult to get financing. It's maddening; plenty of homes, comparatively low prices, and low interest rates, but it seems to many borrowers like no one is lending.
Mortgage interest rates have been in the news for the last few months, along with the world's credit problems. After a few years at historic lows, they had been rising for the last year or so. After the credit problems the Fed cut short term interest rates, and mortgage interest rates fell too. Don't think that the Fed actually cut the mortgage interest rate offered by your mortgage lender. They are not the same thing. Don't get confused by the Fed's recent short term interest rate cuts. The Fed directly affects short term interest rates that banks pay, but not long term bond rates. These bonds are traded in exchanges every day and investors there set prices they'll pay for long term bonds. The bond market has a much more direct effect on your mortgage interest. Interest rates are low now, but they can and will change based upon future economic conditions perceived by investors, and the prices they are willing to pay for long term debt.
Even highly credit worthy borrowers are being hit with stringent conditions, and large down payment requirements if they want to get a home loan. Today it seems like 20% down is the norm, much like years gone by. The problem is that few new homeowners can manage to scrape together 20% for a down payment, especially when one considers that the average home price in many cities averages well over $300,000.
Those who'd like to refinance can do so, provided they have the required amount of equity in their homes. Again, there are problems, as the real estate markets in many areas have been soft or have experienced depreciated home values. Some or all of the equity homeowners had last year is gone now. In many cases there isn't enough left to provide what lenders are looking for in order to refinance.
That isn't a hard and fast rule, but this situation is being experienced by many prospective borrowers, wither those wanting to refinance or buy a new home. It all points to the importance of improving your credit score before you apply for your loan, and optimizing your financial situation, such as your debt to income ratio. With the current market situation, you need to have every advantage in your corner.
Discover how you can refinance with less than perfect credit, even in these difficult times. Go to the bad credit refinance guide.
