Are You Able to Refinance? Find Out

With rates being the lowest they have been in nearly half a century, customers are anxious to refinance. Here are three things that might prevent them from being able to do so.

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.

Source: http://www.brokeragentsocial.com/article.php?article_id=316