September 2011 - Mortgage interest rates
are around a 50year low, refinancing is an appealing prospect for many
homeowners. According to Freddie Mac’s weekly rate survey, a 30-year,
fixed-rate mortgage averaged 4.22 percent. Slice the term in half, and
the rate is 3.39 percent for a 15-year, fixed-rate mortgage.
Homeowners across the country are saddled with low equity or negative equity in their homes. While refinancing is possible with as little as 3 percent or 5 percent home equity, it may be less worthwhile after taking mortgage insurance and closing costs into account.
If you don’t have home equity, you still may qualify using a government refinancing program called HARP. Much attention has goes to the loan modification program, which hasn’t solved any problems. But HARP (for Home Affordable Refinance Program) can be tough to qualify for, especially for borrowers with second mortgages and mortgage insurance. Plus many homeowners who qualify have already taken advantage of this program.
Lenders want to see consistent, steady income. If they’ve had challenges with employment in the past two years, gaps in their employment, that is the second-biggest challenge. You need to be back on the job for six months. Recent retirees or families relying on self-employment or contract income could also find it difficult to qualify.
Another hurdle for many burned by the recession is having a high enough credit score. The magic number to receive the very best rates is at least 740. You can still qualify for a loan with a score south of 740, but forget about getting a brag-worthy interest rate. But with today’s low rates, most people have good enough credit to get the lowest rate they’ve ever seen,” McBride said.
Here’s a little-known tip for the credit-challenged but cash-flush. Surprisingly, for 15-year, fixed-rate mortgages, lenders don’t adjust the rate up or down based on credit score. If you’re willing to step up and make the higher payment, they’re willing to overlook credit blemishes, to a degree. Generally, you still need a credit score in the mid-600s to qualify for a loan, but if you do, your rate will be as good as your neighbor scoring north of 800.
Refinancing through FHA is also an option for those with scores in the 600s, but a recently increased upfront mortgage insurance payment makes it less attractive.