Ready to Refinance?

With Obama’s new Making Home Affordable Plan recently released, its time for another post about refinancing and how to make the process as painless as possible. Lenders are more apt to reduce your interest rate now that there is federal money backing them up. If you have already tried to refinance before and have not been successful, it might be time to try again. First, you should make sure that you fit within certain criteria in order to qualify:

• Mortgage is Fannie/Freddie approved. No loans over $729,500
• Mortgage was signed before January 1, 2009
• You live in the property
• Have full documentation of your income and assets. 2 paystubs and 2 years tax returns (you will have to sign a 4506-T form)
• Have a financial hardship and can sign a legal document attesting to this

Once you meet these requirements, I would next try to obtain the real market value of your property. You can use sites like Zip Realty, or Zillow, to give you an approximation of your home value. This new program has a cap of 105% on the Loan to Value (LTV), which means that you can refinance up to 105% of what your home is currently valued. You should make sure that you are not over this ratio or at least very close to it before you proceed.

In years past, if you were in the market to refinance, you could go back to your lender, shop around by calling banks and other mortgage companies for the best rate, or use a mortgage broker to do that shopping for you. In today’s environment, going back to your lender has the most benefits. Your current mortgage company already has you on their books, is aware of your payment history, and is also more likely to offer you a better deal so they can maintain their operations. Your lender has the most to lose and gain by refinancing your mortgage. I strongly suggest that you speak with your current lender before exploring other options.

Once you speak with your lender, explain to them the situation as truthfully and unbiased as possible. Depending on your credit score, house value, amount owed, other debts, and current income, your lender will be able to determine how much they can reduce or rate. The days of stated loans are over and it will make the process smoother if you are truthful about your situation and how you got there. You are going to have to prove that you make what you say, or what you have in the bank, so there is no need to try to dupe your lender. Remember, these lenders are now being compensated for each loan they adjust under this new modification program. They want to help you. Not to say that they will ALWAYS be able to help you, but it’s worth the shot.

Does anyone out there have any recent experiences to share regarding refinancing now that the new bailout guidelines have been launched?

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