Real Estate Matters: Condo owner considers refinancing but struggles to find a lender
Q: Is it possible for you to refer me to a mortgage lender? I’m a single woman who would like to refinance the condominium I’ve lived in for the past 15 years. I have excellent credit. My monthly income seems to be a little shy of what lenders are looking for, by about $200 per month. My mortgage payment history is excellent.
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 that 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 that 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.