You've got your ducks in a row by ensuring that your credit
report is unmarked by blemishes. You think everything is in
order and approval is all but guaranteed.
Unfortunately, you've overlooked one vital detail and as a
result of this oversight, your refinancing plans have been
shot down.
In case you haven't noticed,real estate values are
dropping. This can be distressing under normal
circumstances, but if you're considering refinancing it can
be especially frustrating.
You face special challenges during difficult economic times
if your area has been flagged by lenders as being in a
"declining market". There is hope, however. Here's what you
can do.
A critical part of every mortgage or refinance application
is an analysis by your lender of your property's fair
market value. In order to make this decision your lender
will usually require a property appraisal. One little check
box can be the difference between an approval and a
rejection when refinancing.
Your appraiser is required to check a box indicating
whether the market is rising or falling.
A rising market means that property values are
appreciating. This means that your property's value is
likely to increase after the appraisal has been done, so in
the event that you don't make your payments your lender is
less likely to lose money if you default on your loan.
However, if the real estate market is in a state of
decline, your lender is going to be much more cautious
before giving your loan application a "yes", even if your
credit is good.
The reason for this is simple. If the value of your
property falls after you've been approved and you
subsequently default on your mortgage loan, your lender
might be faced with foreclosing on a property that is worth
less than what is owed.
Mortgage insurance helps protect your lender in the event
that you default; however, that insurance policy will only
cover the loan up to your property's value.
If an appraisal shows your property is in a declining
market, your lender is likely to assume your property will
continue losing value.
So they'll take a defensive stance by reducing (usually
about 5%) the amount they're willing to loan on the
property. This will usually result in your needing to pony
up some cash at closing if you're going to get the loan
that you need.
A strategy you can try is simple negotiation. You can ask
your lender to accept a higher rate of interest in exchange
for the lender paying any closing costs you might otherwise
be required to pay. Will it work? I don't know. Nothings
guaranteed, but one thing is certain: You won't know for
sure if you don't ask.
It's kind of like asking a particularly alluring member of
the opposite sex out on a date. You might think you don't
stand a chance, but if you don't pick up the phone and make
the call, you'll never know.
If your lender doesn't nibble at the bait you really have
one choice: Take a wait and see approach. Hopefully
property values will reverse course and begin going up
again. When they do, you'll be ready.
----------------------------------------------------
Darrin Roseborsky is a Refinance Specialist with OMAC
Mortgages, seminar speaker and president of the Roseborsky
Group and HomeRefinanceCoach.com. Darrin can help you
MAXIMIZE your equity PROPERLY and help you choose options
that make the MOST SENSE for your situation! Learn more
about how it works at: http://www.homerefinancecoach.com
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