As a loan officer of nearly 7 years I can tell you that when it comes to getting a mortgage, most people have tunnel vision. You guessed it; most of us are only focused on one thing: getting the lowest interest rate. While interest rates are obviously an important factor considering real estate financing, it is not the only thing, especially when housing prices are in decline.
For this article I am going to spend some time talking about home values in a declining market and what it means to you in terms of being able to refinance. For these other topics just listed and questions please refer to the articles on GetPreQualified.com.
The real estate boom of 2004 - 2006 is over and now we are left in the spoils of it. If you bought a home in that time period and did not put a lot of money down, you could be in trouble if you need to refinance. “Why” you ask. It is because the housing markets all of the United States are suffering from declining property values and more conservative loan programs and guidelines. There are some exceptions, but in general the housing market in 2007 actually went backwards for the first time since the Great Depression.
Many homeowners who put little money down when they bought their home during 2004-2006 these days are likely to face a mortgage balance that is more than their home is worth. This very situation is what Congress is debating in depth right now in January 2008; does the government step in and help save consumers who have adjustable rate mortgages that are adjusting and owe too much to refinance.
You may find yourself in this situation. Unfortunately, you may be stuck unless you have some money in the bank to pay your loan balance down. If you do not have the money you could be facing a foreclosure. Another option might be to check out Neighborhood Assistance Corporation of America.
Waiting To Refinance To Get A Lower Rate Could Cost You Your Home
If you know that you have an ARM and need to refinance in the near future you could be shooting yourself in the foot if you are waiting to see if interest rates are going to go lower. While interest rates have been going down over the past few months, so have housing prices.
Lower housing prices causes several problems for you as a homeowner. First and foremost, it impacts the value of your home. If your home value decreases too much you might not be able to borrow enough in a new mortgage and you could have to pay money out of your pocket to refinance. With limited money in the bank you could be in trouble if you have to refinance.
Given the mortgage and real estate shake up in 2007 the underwriting and loan program guidelines by Fannie Mae and Freddie Mac are getting more conservative and harder. Fannie Mae and Freddie Mac are re-writing their appraisal guidelines in many counties across the country. For example, Fannie Mae and Freddie Mac deem Maricopa County a declining market. In general, if you own a home in this county your appraisal will probably be cut by 5% right off the bat if your home is determined to be in a declining market neighborhood.
My advice is to do what you need to do now. If you need to refinance, do it. I keep thinking of a phrase that a friend of mine told me once, “Pigs get fat and hogs get slaughtered”. Holding out for an extra .125% in interest rate is not worth it. Not being able to refinance your home if you need to could be a disaster.
If you need to refinance get your application started now!
Debt Free Dave has been in the mortgage and consumer finance business for over 10 years. He has a Finance and Real Estate degree from the University of Arizona.
This Article is designed to be of general interest and should not be considered legal advice. The specific information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal legal adviser.
