In my last post, Barriers To Refinancing, I spoke about several issues that borrowers are having while trying to refinance or even purchase a home. Here are a few other reasons…
Credit. enough said!
I heard a startling statistic the other day. Just over 25% of the population has a credit score under 600. While just 2 years ago, the average score was nearly 700, the scoring guidelines were much looser. This means that with the current minimum score for a mortgage loan being 620 in most cases, probably 30% of the population will not qualify!
Even those that have demonstrated good spending techniques and have been rewarded with high scores are getting hurt because of the economic conditions and the actions of the banks. For instance, let’s say that “Steve” had a credit card with a $3,000 limit that he never carried a balance of more than $1,000 on. With a history of no late payments and a “utilization percentage” of about 33%, he was being rewarded via his score for being responsible. Now, this same bank has decided to cut his limit to $1,500, still over his balance. While this may not seem like an issue, his utilization percentage is now 67% and his score is likely to drop because of it.
And this is just one of the “stealth” ways that your credit card company can hurt your score. To make matters worse, it wouldn’t be surprising to see that same company increase his interest rate at the next review because his scores dropped…
Several of the responses mentioned job security. While there may have been some job security 20-30 years ago, I’m not sure that it really exists now. Is any job really secure?
I think the point is that we never expected to see widespread layoffs and companies closing like we have in the 18 months or so. We thought we were immune to the 10-12% unemployment in northern Indiana. Even a few steelworkers that I know (not to single them out) were unable to refinance their homes because their debt-to-income ratios were too high when they were ONLY working 40 hours a week. Once you have adapted to a lifestyle, it can be a difficult transition.
Here are a few of my thoughts on why we don’t see more refinances. I can be brutally honest, so proceed with caution.
First, loan officers lie. I won’t put out a blanket statement and say that all do, but there are a lot that do. It may be unintentional. For instance, if you call 10 mortgage companies, you are liable to hear each one say they have the best rates. Is it possible that all 10 have the best rates? How about that they all have the best service? Once again, is that possible? Hint to mortgage folks: you must have marketable rates and provide good service to still be in business!
Hint to consumers: you should not shop by rate. Period! A lower rate in the wrong program WILL cost you more each month. You should shop by payment. If you would like an article on how to shop for a mortgage, contact me at scott@nwiloanguy.com.
I prefer to let the facts speak for themselves. Two weeks ago, I closed a loan that took only 4 days to go from application to having permission to close by the lender. While they will not all be lightening fast, with our in-house underwriting and my team behind me, we can get things done quickly. As far as rates, I promise to get you the best rate, in the right program, with the least amount out of pocket as possible. While that is sometimes tricky, my word is my bond.
Next, some people are against refinancing because it costs too much and/or they do not want to increase the loan balance. While I can fully understand the reluctance, let’s look at this using some round numbers just for example. If it cost $4000 to refinance (added to the loan) and you were able to save only $100 a month, it would take just 40 months to recoup your investment. In under 3.5 years, you would be saving money every month with NO money out of pocket.
You could then either save the extra in the bank, or continue to make the same payments as you always have and pay off the loan much sooner by applying that extra $1,200 to the principle. Truth be told, you could probably go buy a boat or motorcycle as your savings should be more than that, but I really don’t recommend that ;)
Here is what I would do if it were me… If I had a current rate above 5.5% or ANY adjustable rate mortgage, I would call me at 219-695-0369! If I can save you $100 a month (or much more) to save, pay for the kids college, pay off the mortgage early, AND it cost you little to nothing out-of-pocket, AND you could skip your next 1-2 payments, would you be willing to consider the idea? Let’s talk! You have nothing to lose and a lot to gain!
Stay tuned for more!
Scott
PS. To get more information, including FREE reports, about how to negotiate the path to your next purchase or refinance, visit the NWI Loan Guy website.
PPS. To find out how we were able to go from application to getting a clear-to-close from the lender in just 4 days, contact me at scott@nwiloanguy.com.