A: Thank you for your question. We don’t recommend specific companies to our readers, simply because it would be too difficult to vet thousands of lenders nationwide, but we can give you some general information on what you should do given your situation.
While you mentioned you have lived in your condominium for 15 years, you didn’t say whether your current loan is from the time you purchased your condo.
If we assume you’re still paying down the same mortgage, a significant chunk should have been paid off by now. So when you refinance, you should have a lower payment. However, it’s likely that real estate taxes and your assessments have gone up over the past 15 years, which would increase your payment.
Has your income stayed the same or declined? With less (or even the same) income, you’d qualify for a lower mortgage amount, which may not be enough for today’s tougher lending standards. Are you self-employed? It’s definitely harder to qualify if you’re self-employed or in an industry known for cash payments, like the restaurant industry.
Still, interest rates are lower now than when you took out your loan 15 years ago, so given that and that your outstanding loan balance is lower, we think the math should work in your favor and a lender should see that your ability to repay the loan is easier.
Of course, there are several other possibilities: If you’re looking to do a cash-out refinance, and your income has declined, then your debt-to-income ratio could be out of whack and lenders might worry about your ability to repay the loan. It could also be that your credit score has declined, and so lenders are requiring more income.
Finally, the answer may be as simple as some lenders don’t want your business because the loan balance you’re trying to refinance is simply too low to justify the effort needed to go through the refinance process. For example, many mortgage lenders won’t touch a loan that’s less than $75,000 to $100,000 because they won’t earn enough money on the points (a point is one percent of the loan amount) or fees to make it worth their while.
You should talk with several different types of lenders (including online lenders, a mortgage broker, a credit union, a small regional bank and a large bank) so you can understand whether it was just the one lender you unluckily happened across or if you have some sort of problem that needs to be remedied before you can close.
You should make sure the lender is well known to you and actively finances homes in your area. Please don’t just walk into a big box lender and say you want to apply for a loan. Many of these lenders are not that active with new mortgage loans or are not interested in new business in that area. You can ask friends and relatives to let you know which lenders they have used; be sure to ask if their experience was good, so you don’t waste time by applying with lenders who aren’t known for their care and customer service.
The reason we suggest you talk with a mortgage broker is they will take your application and send it to one of the many mortgage originators they work with to try to find the best fit. Ask for a referral or two from a trusted friend or family member, and be sure to get detailed information about how the process worked.
Lastly, we’re fans of credit unions, which tend to offer extremely competitive pricing on home and auto loans (in particular) along with financial wellness information and counseling. So if you’re a member of a credit union or can join one, you should apply there as well.
With each of these lenders, try to sit down with them (in person or on the phone) and walk through your income, home valuation and credit score and credit report (you can get a free copy of your credit score and report from each of the three credit reporting bureaus, Equifax, Experian or TransUnion.
If all of these lenders tell you the same thing regarding your income situation, you’ll know refinancing may not be available to you because of your income level. If one, or all, of them tell you that your income is sufficient, you can then decide whether to apply.
At the end of the day, remember that just because you can refinance doesn’t mean it’s in your best interest to do so. If your loan balance is $100,000 and your interest rate is 3.5 percent, you’d have to figure out how much your closing costs would be to see if it’s worth refinancing. Some lenders may charge you several thousand dollars to refinance, and it might take you a few years to make up the refinance closing expenses, even with the lower payments.
Also, be careful of the sort of loan you’re being offered. If you’re 15 years into your loan, it might not make sense for you to take out a new loan that would extend your payments for 30 more years, 15 years beyond the end of your current loan.
A home-run refinance has four components: Ideally, you want to lower your interest rate, lower your payment, shorten your loan term and minimize your closing costs. If you can do all of that with your refinance, then you’re in great shape. A refinance might still make sense even if you just lower your payments and stay with the same loan term.
It all depends on the size of the loan you take out, the interest rate you’re offered and the payments you can make. Please take some time and do the math so you wind up making your best money move.
Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate lawyer. Contact Ilyce and Sam through her website, ThinkGlink.com.
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