Loans are Getting Much Tougher to Get

I had Alice White Hinckley on the show with me yesterday. She is a mortgage consultant that I have known for over 25 years. If you are in the market to refinance or finance a new home purchase, I would highly recommend her. She is very good at what she does.

The mortgage markets are really changing. Credit scores are incredibly important. The bottom line is that anything north of 680 is going to get you a good rate. However, the further you fall from 680, the rates start to go up. Alice said that they will increase at every 20 point interval as you decline below 680. Then there comes a point where you don’t qualify at all.

The biggest problem is the lack of equity in homes. Due to the small percentage that was placed as a down payment during the initial purchase as well as the declining values of homes, many homeowners find themselves upside down in their home (owing more than the house is worth). Banks and lenders want to see some type of equity.

Private mortgage insurance has also increased in price. Beyond the monthly price increases, often times lenders are requiring an upfront cost to be paid at closing. In other words, not only are interest rates higher, so are the closing costs.

So, here are a few tips:

1) Plan ahead – If you know that you will need to refinance, talk with a mortgage consultant ahead of time so that you know your situation. Even then, things could change between today and the time you are going to refinance. It appears that things are changing daily as banks attempt to keep up with this credit crisis.
2) Know your credit score – This is also important. Work to keep that credit score high. If your credit score is low, do whatever is necessary to increase your credit score (beyond calling one of the credit repair companies that advertise on the telephone pole).
3) Find a mortgage consultant and stay away from the sales people – In this environment, you need someone who is going to act as a consultant and not someone who is going to pretend to be a consultant but really is nothing more than a slick salesman.
4) If fees at closing seem excessive, they just might be – Some of these mortgage brokers are charging outrageous fees and getting away with it. Most fees are standard across the board. Then some try to charge points (additional fees) stating that there is no way around it. Remember you can always get a second opinion.
5) If you have an adjustable rate mortgage, don’t just assume you should re-finance – Look the numbers over very carefully. Your rate might not increase to the point where refinancing makes sense. If you can buy another year, it makes sense to do so. The credit markets might be in better shape a year from now.

To listen to yesterday’s show, click here.

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