Learn About Refinancing Obstacles
If you're looking to refinance your home, here are some of the obstacles you'll face and some ways to overcome them.
Appraisal - When housing prices were trending up, appraisal value was seldom a roadblock to refinancing.
Homeowners are increasingly receiving lower-than-expected appraisals, sometimes because prices really have dropped, but also because of changes made to the appraisal process aimed at ensuring impartiality. More appraisers are working in areas they aren't familiar with and that often means they're going to undervalue property.
The first part of your solution is to do your homework, have a local real estate agent pull comparables of the recent sale prices of properties similar to yours in your loacl area and visit nearby open houses. Now, armed with that information... the homeowner should have an idea about the real value of his home and shouldn't be shy about letting the appraiser know it.
Condos sometimes don't get favorable appraisals, this problem is especially common with condos. This environment has concerns due to multiple short sales or foreclosures in buildings. Without equity, a borrower's only recourse may be to get a mortgage modification from their current lender that holds the mortgage. Be prepared to make many telephone calls, current lenders need to understand and you must persuade them that a refinancing is in their best interest also.
What to do if Your Credit Score Dropped - While a low credit score has always been a barrier for borrowers, adjustments by credit card companies have had unanticipated results for homeowners.
For many, when you got their mortgage, their credit score might have been fine, but today a change in their credit limit or a spike in their interest rate can have a dramatic impact.
The drop may seem small but, 20 points to 30 points can make a big difference in the price you pay as a borrower or whether you're able to refinance at all. The key is knowing your credit score and working to improve it before you refinance.
You can be surprised to know that sometimes it's as simple as calling and asking your credit card company to bring your credit limits back up.