• Address: San Jose, CA 95103 (map)
• Date Posted: 10/08/09

3 Things that May Prevent You from Being Able to Refinance
Negative Equity.
If you bought your home a few years ago and didn't put any money down, chances are your loan is now "underwater". If your loan is underwater, you owe more on the home than it is worth. If you owe $400,000 and the home is worth $300,000 you will be hard pressed to find a bank that will allow you to refinance.

If you purchased the home using an FHA mortgage, FHA allows something called a streamline refinance. With a streamline refinance, no appraisal is necessary so this would enable you to refinance even if you owe more on the home than it is worth.

President Obama also has a plan which would allow you to refinance if you owe 105% on the first mortgage. His plan would allow you to keep an existing 2nd mortgage in place provided the 2nd trust lender agreed to stay in second position (i.e. agrees to re-subordinate).

Another solution to the problem of negative equity is to pay down the balance on your mortgage. You can do it with a lump sum payment (by taking money from a retirement account or savings) or do it gradually buy adding principal to the amount you pay each month. That will make your overall financial situation better in the future.

High Debt To Income Ratios.
Lenders look at two ratios when they consider your loan. The first ratio they look at is the ratio of just the mortgage payment compared to your income. The second ratio is the mortgage payment + all your other monthly expenses that show up on your credit report.

Loan programs vary on their ratio requirements but lenders typically like the 2nd ratio to be no more than 39% (some loans do allow higher ratios). The solution to this to either to pay down your debt so your ratios improve or make more money. Sometimes getting a job with more income can help you qualify for the loan.

Poor Credit Score.
The lower your score, the higher your interest rate. As a minimum, lenders want at least a 620 score for FHA loans. Conventional loans have add ons if your score is below a 740. If your score needs improvement, it can improve over time. The easiest part of your score to manipulate is by paying down your credit card balances. Dispute any information on your report that you don't believe is true.

If You Can Save a Point in Your Interest Rate, It Might Pay to Refinance

With the flurry of news reports showing interest rates are dropping, it can be tempting to refinance. How do you know if refinancing makes sense or not? The typical rule of thumb is that if you are going from a fixed rate loan to a new fixed rate loan, you should save about 1 point in the rate in order for it to make sense. So if your current rate is 6% and you can get a rate of 5%, it would make sense to refinance.

Many people with Adjustable Rate Mortgages are interested in switching over their loans to a fixed rate mortgage. A wise thing to do if you have an adjustable rate mortgage is to pull out a copy of your adjustable rate rider. This document will tell you what index your rate will be based upon as well as the margin that is added to the rate. That will let you know what your payment will adjust to. Keep in mind that many people who have ARMS have rates that will adjust to 3 or 4%. Here is how you would figure out what your rate would adjust to. If it tells you that the index is the London Interbank Offered Rate (LIBOR) and your margin is 2.25, you'd look up the rate for the LIBOR which today is 1.92 + 2.25 your margin for a total of 4.17%.

Some ARMS don't adjust all that badly and can actually have better rates that what is currently available for fixed rates. If you like the security of having a payment that won't increase, it still might make sense to switch to a fixed rate. Another important factor that most people don't consider when refinancing is their timeframe to stay in the home. If you only plan on being in your home a few years, refinancing probably doesn't make sense. It takes some time to recoup the cost of refinancing.


Gold State Properties GMAC Real Estate
393 Jackson street Hayward, Ca 94544
Andy Tran DRE license # 01439113
(Cell) 510-927-0571
Fax: 510-868-2809
Email: askandy2009@live.com