Mortgage Monday

The Fed, in hopes of relieving many homeowners from the pains of foreclosure and many banks from the waste of foreclosing, has created an even more aggressive refinance program. This program which came into play a few weeks ago was created to assist even more people refinance their mortgage when their home values are too low for conventional financing.  The consumer buzz is that anybody can get a mortgage now with ease. The industry buzz is still about the guidelines and if a borrower qualifies for the program.  Below are five fallacies that might disqualify you from the program.

It does not matter who your current lender is, any lender you go to has to do your loan

Not true First off, your loan must be owned by Fannie or Freddie and not a third party investor or another bank. You can find this out by going directly to their sites and keying in your information. It will tell you if your loan is owned by the agency. You may also call your current lender and ask them to look up who owns your loan. So if you want to refinance under the Fannie program, the loan must be owned by Fannie and the same for Freddie. Secondly, not all lenders will refinance a loan under the program that is not already serviced by that bank. You need to know this upfront, because if they do have a program for loans not already held by that lender, the guidelines could be different.

It doesn’t matter how bad your credit score is, the government demands that they do your loan

Partially true There is no minimum credit score required, however, the lender you go to will have their own minimum score requirements and further will have premium (higher) pricing for lower scores. So your credit score is important maybe not to qualifying for the program itself, but for the interest rate you are offered.

There is no max on the loan to value the bank will allow

Not true The lender will always have a maximum loan amount from 95 to 125%, depending on the property type and mortgage product. There will also be a cap on the total loan to value for a first and second mortgage. If there is a second mortgage, it must be subordinated to the new first mortgage or paid off with the borrowers own money. It cannot be consolidated into a new loan and cannot be refinanced into a new second loan.

It does not matter how high your total monthly expenses are as long as your mortgage payment goes down

Sorry, wrong again. The lender will have their own maximum expense to income ratio and most of them cap out at 45%. The formula goes like this: total housing expense plus all other bills can be no greater than 45% of your gross monthly income. Do the math at home.

You do not need an appraisal

Wrong Whether the lender will require an appraisal depends on the approval they obtain from Fannie. If they require it then the lender will require it and even if Fannie/Freddie does not require it, the lender still might.  The risk factors will determine this. Such things such as loan to value, credit score, reserves and expense ratios.

Other things you might want to consider are that you have to prove your employment and income, there are closing costs and it simply might not be worth it to you or the lender.

These are just a few things you need to know before you apply for a new mortgage and hope your monthly payment goes down. Unfortunately, there are many holes in the system, because let’s face it, what lender really wants to give you a 4% interest rate for 30 years when your home is worth less than the mortgage amount.