Articles & Tips
The Effect of Home Value on Refinance Home Loans
With mortgage interest rates still at near-record low levels, the market for refinance home loans remains hot. If you are a homeowner who has been on the fence regarding refinancing your existing mortgage, or if you refinanced already but it has been a few years, the timing is right to consider a refinance home loan. But what if, like so many homeowners, the value of your home has dropped over the past few years?
Although mortgage lenders have tightened their mortgage underwriting standards in response to the rash of foreclosures caused by the market downturn and by previously overzealous lending standards, many homeowners are finding that they can still qualify for an advantageous refinance home loan. The main consideration in obtaining approval for a refinance in periods with declining home values is the loan-to-value ratio, which compares the amount of the refinance home loan with the home's current market value.
For a homeowner who has built sufficient amounts of equity in their home over the years, or for a homeowner who put a substantial amount down on their original loan, qualifying for a refinance home loan on the basis of the loan-to-value ratio shouldn't be much of a problem. It's the newer homeowners who put little or no money down on their home purchase who are running into trouble when they apply for a refinance loan, since the new loan-to-value ratio doesn't meet the underwriting standards to allow them to qualify for a new mortgage loan.
While mortgage lenders look at a number of criteria such as income, credit rating, and savings when evaluating whether to approve a refinance home loan application, the loan-to-value ratio can be a deal killer if it is too high. Depending on the specifics of the mortgage transaction, there are a few things that homeowners could do in this situation to obtain a refinance loan.
The appraisal determines the home's current market value, and it's difficult to fudge an appraisal, especially in light of new regulations that have tightened standards and procedures regarding property appraisals. If there are one or two comparable sales that are pulling the home's appraised values down, it might be worthwhile to wait a few months till these comparables fall off the radar, and then the appraiser can perform an updated assessment of the home's value.
If financial circumstances allow, a homeowner can pay down their mortgage by an amount sufficient to place the loan-to-value ratio in the target zone. This strategy is advisable in cases where the homeowner intends to stay in the home for many years so they can take advantage of the savings afforded by the new refinance home loan's lower interest rates.
© 2012 ApexRefinance. All rights reserved.