More Stringent Home Mortgage Lending Standards

Home mortgage interest rates the third week of March were still hovering around 5 percent. The Federal Reserve made a decision to keep rates low and many analysts expect them to stay fairly low for the remainder of 2009. Given the shaky state of the economy and the increase in unemployment, low rates have been the one shining light for those considering buying a new home with a home mortgage and, particularly, for those wishing to refinance. The one hiccup for some borrowers has been the tighter standards lenders now have in place. A better credit score, cleaner credit history and more money down are now required for most loans. That means that more home mortgage applicants than ever before are being turned down. Homeowners looking to refinance are under the same scrutiny. Many lenders are now requiring at least 20 percent equity and a credit score of 700 or higher to qualify. Having sufficient equity to qualify has been a challenge for homeowners in markets that experienced a significant drop in values. Part of the new stimulus plan introduced by the Obama administration is designed to help those who keep up with their mortgage payments, but whose home values have dropped so much that they now have little or no equity. But those who owe more than 105 percent of the value of their home will not be eligible for a refinancing under the plan. Those who have at least 5 percent equity in their homes will qualify.
Some consumers think the home mortgage rates will decrease even more, so will wait to refinance until then. They may be right and snag an even lower rate in the future, or wish they would have grabbed the lower rates. As home values are predicted to continue to fall, homeowners who wait take on the risk that the equity in their homes may decrease if the values decline more. Those who are looking into home mortgage refinancing now with the low rates should make sure the benefits outweigh the costs for their particular situation before jumping in. Knowing all the costs of the refinancing is essential. Many people simply look at the savings differential between their interest rate and the new lower rate and forget to consider the actual costs of refinancing. If you plan to continue to own the house after you recoup the costs and start benefiting from the monthly savings, it probably makes sense for you to refinance.