Refinancing a Mortgage Has Gotten Easier

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Thought you couldn’t refinance? Think again.

Mortgage lenders are finally beginning to soften the restrictions they had imposed on mortgage lending, whether it is buying a new home or refinancing an existing one.

The standards by which you can qualify for a mortgage are not as loose as they were prior to 2008, but they are certainly more relaxed than in recent years since the market meltdown.

The reason for these generous terms is that the refinancing market has pretty much dried up, as most everyone has refinanced their homes at the lower rates over the last few years. Many of those with good credit scores have already secured low-interest mortgages. So now the banks are starting to accept customers with less favorable credit or income situations.

Here are a few changes that might encourage you to find that new home or refinance an existing home:

Banks are now accepting a lower down payment, some as low as 3 percent, such as TD Dominion Bank. They are no longer asking for the 10 to 20 percent that has been the case in the past few years.

Banks are also accepting a lower credit score than in the past. An individual’s FICO credit score can range from 300 to 850. Until recently, anyone with a credit score below 760 had a hard time getting a mortgage and had to make a larger down payment or accept a higher interest rate on their loan–or they could not get a loan at all. It is reported that recently, the Federal Housing Authority (FHA) has been approving loans with credit scores as low as 684.

It has been especially difficult for those who may not be working but who have reasonable-sized nest eggs who want to buy a new home or refinance. Since lenders look at income as a determination of one’s ability to pay off a mortgage, these individuals have been left in the cold as they have no W-2 income. Now lenders will consider their savings, whether they are in a taxable account or tax-deferred, and will apply a mathematical formula to determine an income level from these assets.

So if you had extenuating circumstances that made you think you did not have a chance at a new mortgage or to refinance, now is a good time to check again.

Disclaimer: The views expressed in this article are the opinions of the author and should not be interpreted as individualized investment advice. Investment objectives, risk tolerances and the financial situation of individual investors may vary. Please consult your financial and tax advisers before investing.

Susan Carr-Templeton

About Susan Carr-Templeton

Susan Templeton is the founder of Stafford Wells Advisors, a wealth management firm serving individuals, families and businesses and advising workplace retirement plans. Stafford Wells was founded in 2008 with the mission of delivering independent, complete, unbiased investment and planning advice, free of any conflicts of interest. Susan Templeton has more than 20 years experience in investment management. She received her B.S.B.A. degree in marketing from the University of Denver and her M.B.A. from the University of Chicago. Susan is a trustee for the Advocate Foundation where she chair’s the Planned Giving Committee and is a member of the Investment Committee. Susan serves on the investment committee for the Visiting Nurse Association (Chicago) and is a former trustee of the Village of Oak Brook Police Pension Plan.