7 New Things You Need to Know Before You Refinance
In the event you have steered clear from what has been going on in the mortgage industry for the last year or two, I thought I would bring you up to date on some of the big changes, and how they affect you.
These changes have slowed down the amount of refinances being done, but being aware these changes may make the process a little easier.
Here are 7 things you should know…
1) A good credit score is now 740 and higher. If you have a middle credit score between 740 and 620, you may still be able to refinance, although you may see a few adjustments to your rate for the lower score. In general, anything below 620 is considered “higher risk” and will not be available for a refinance.
2) The value of your house has likely dropped. Nobody enjoys hearing this news, but it is a reality. In the last two years, values have decreased in most parts of the Country. This simply comes down to supply and demand. The number of homes on the market has increased due to foreclosures, short sales, unemployment, loss of value, and many other factors. With so many houses available on the market in each neighborhood, a buyer now has more choices and leverage when purchasing. This has a direct effect on the appraised value of your home, because appraisers use recently closed sales to determine the value of your home. If the house across the street recently sold, and is roughly the same square footage, the same age, and has a lot of the same amenities; it is probably a great comparison for an appraiser to use. This will give you a good indication of the value of your home.
3) The refinance process takes much longer than before. Many homeowners in the past have decided to refinance, and seven days later, they were signing the paperwork. This is not the case any longer. New legislation has been put in place to protect the homeowner, and these steps have delayed the refinance process. If you are in the process of refinancing, expect the process to take 30 to 45 days with your lender or mortgage broker. In addition to the new regulations put into place, many lenders have decreased employees, causing additional delays. Now best case scenario to refinance is about two weeks.
4) Taking cash out of your home is not as easy as it has been in the past. The years of using your home like an ATM machine are over. Lenders limit you to 85% of the value of house for a cash-out refinance. In addition, you will receive a slightly higher rate for a cash-out refinance. Expect to pay about 1/8 of a percent higher for a cash-out refinance if your loan amount is 60% higher than the value of your house. This is industry wide, not on a case by case basis.
5) Stated loans do not exist. In order to qualify for a loan, you must be able to prove your income over the last two years. You cannot use bank statements, receipts from sold goods on EBay, or any other alternative method you may have used in the past. Underwriters now verify everything and you must be able to prove it with traditional methods such as tax returns, recent paystubs, and verifying employment over the phone. Regardless of how good your credit, you still need to prove your income.
6) A new policy has been established for appraising your home. The new Home Valuation Code of Conduct (HVCC) was implemented to prevent loan officers from pressuring appraisers for higher values. Now, loan officers are not permitted to speak with an appraiser or order an appraisal directly. Instead, the new HVCC requires that appraisals be ordered through an independent third party company, and eliminates any interaction between appraisers and loan officers. The third party acts as the middle man, receives the order from the loan officer, and places an order with an appraiser. There are many problems with the process in general, but most notable is that appraisals are being done on homes where the values needed to refinance are not realistic. In the past, a loan officer would call an appraiser, place the order, and give an estimated value of your home. If that value was unrealistic, the appraiser would notify the loan officer and the appraisal would not be done, saving the borrower $300 to $500. Now, the appraisal is being done regardless of value, the value is too low to refinance, and borrowers are out the cost of the appraisal. Again, this is just one of the many, many issues with HVCC. Hopefully, some of the people behind this process try and refinance and see how much it is truly hurting the industry, and make the appropriate changes.
7) You can get turned down for a loan. To some, this sounds crazy. The days of everyone qualifying for a loan are over. You need to qualify based upon the three C’s…..character, capacity, and collateral. You need to have the credit score, job history, and mortgage and employment history. In general, your character has to qualify you for the loan. You must also have the capacity to afford the loan as well as the equity in the home. The three C’s were thrown out by many companies in the past, but they are back and my guess is they will be here to stay for quite some time.
To find out about more changes in the mortgage industry and what you can do to qualify, visit my site today.
Tags: credit reports, credit scores, maryland mortgage, maryland refinance, mortgage refi, mortgage refinance, refi
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