The first time a Greenwood family emailed Ruby Grynberg at Salmon Bay Community Lending early last year to see if they’d qualify for a refinance on their $379,000 home, she said no. Rates just weren’t low enough yet to justify the closing costs, even though the family had been shelling out $2,300 mortgage payments at 6.5 percent interest since buying the house in 2005.
Then rates dropped, and when they emailed her again in January they got the answer they were looking for. Their home’s value had climbed modestly, to $400,000, they had an exceptional credit score of 800, and they had 30 percent equity in the property. Grynberg was able to get them a 4.75 percent rate and lower their monthly payment by $400; they wrapped their $5,700 in fees into the new loan, but they’ll recoup those costs within 14 months.
With borrowers calling every day in the hopes of lowering their rates, lenders like Grynberg have all kinds of success stories, but the Greenwood family also encountered some problems that have become all too common in the tightened credit market. Both husband and wife work, but she’s self-employed. They easily qualified for the new loan on just his salary, so they didn’t bother to claim her income. The lender found it, though, when pulling the couple’s tax returns, and demanded further documentation. A whole lot of further documentation. The moral of the story: Even though you may look like a perfectly credible candidate for a refi, don’t be surprised if your lender starts snooping around in your IRS file. “Because of the amount of fraud that people are trying to get away with, anything is a red flag—even too much income,” Grynberg says.
The rate you qualify for will depend on your debt ratio and your credit score (Eagle Home Mortgage certified mortgage planning specialist Cristie Stapp says you need to come to the table with at least a 740 if you don’t want to pay points). And if you find a reliable quote that will save you considerable coin, snag it—quickly. Thanks to unprecedented instability in mortgage-backed securities, rates are bouncing around like a preschooler hopped up on Red Bull. “On average, I’m seeing about three rate changes a day,” says Rhonda Porter, a local licensed loan originator. When you’ve found a rate that works for you, make it clear to your lender that you’re serious about the transaction. “You want to help everybody, you’d love to,” Porter says. “But if you don’t sense that someone is ready, then they’re not going to take the same precedence as someone who is committed to locking.”
TIP To see if you’re in the ballpark on ratio of loan amount to home value, lender Ruby Grynberg says, take the estimated value of your home in 2007, subtract 10 percent, then subtract another 80 percent of that, and then another $8,000. If you’ve got at least that much equity, you’re in good shape.