More Stringent Home Mortgage Lending Standards
Posted 05/03/09
Home mortgage interest rates the third week of March were still hovering around 5 percent. The Federal Reserve made a decision to keep rates low and many analysts expect the rates to stay fairly low for the remainder of 2009. In the current economic downturn, it is welcome news for potential buyers and current homeowners interested in refinancing a home mortgage. Lenders, however, have adopted much more stringent lending requirements since the credit crisis and decline of the real estate market. Borrowers must now have higher credit scores and put down larger down payments to qualify. That means that more home mortgage applicants than ever before are being turned down. Homeowners looking to refinance are under the same scrutiny. Many lenders are now requiring at least 20 percent equity and a credit score of 700 or higher to qualify. The biggest hurdle for applicants in the areas of the country where values have dropped the most is having enough equity. Part of the new stimulus plan introduced by the Obama administration is designed to help those who keep up with their mortgage payments, but whose home values have dropped so much that they now have little or no equity. But those who owe more than 105 percent of the value of their home will not be eligible for a refinancing under the plan. Those who have at least 5 percent equity in their homes will qualify.Many who are considering refinancing a home mortgage are waiting to see if the rates drop below 5 percent. Their gamble may pay off, or the rates may creep back up. As home values are predicted to continue to fall, homeowners who wait take on the risk that the equity in their homes may decrease if the values decline more. Consumers who wish to take advantage of the current low interest rates to refinance their home mortgage should do some simple calculations to determine if such a move makes sense for them financially. Knowing all the costs of the refinancing is essential. Many people simply look at the savings differential between their interest rate and the new lower rate and forget to consider the actual costs of refinancing. For those who will be able to break even and begin to reap the benefits of the lower monthly payments before they plan to sell their house, refinancing is generally a sound financial decision.