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2010 Still A Good Year to Refinance

By Faye Mergel
Published: Wednesday, January 20th, 2010

Owen Metz says getting a refinance is all about the dollar. The Plymouth, Minn. homeowner is saving $150 on his mortgage payment after getting approved for refinancing. Many people like Metz who are still paying those 2007 and 2008 rates are now looking for creditors who are willing to refi their homes. While this is an excellent financial move, experts warn that lenders are now more careful on whom they lend money to.

2010 Still A Good Year to Refinance Tougher loan qualifications are among the major reasons why the number of Americans who refinanced their homes dropped this December. The Mortgage Bankers Association recently reported that the number of mortgage refis dropped by 30 percent on Christmas week. Analysts also blame the surge in interest rates, now past 5 percent, for the decline.

Nonetheless, many homeowners still want to refinance their homes, since the current rates are generally lower than the 6 percent interest rates in 2007 and 2008.

On the other hand, mortgage broker Jay Dacey noted that refi applicants saw better times in 2009. Like Dacey, finance advisers believe it is better to be cautious this year. Interest rates are most likely to go up in the next few months after the federal government gradually weaned the mortgage industry from its multibillion-dollar support. Boston Federal Reserve President Eric Rosengren believes rates could go up by three-quarters of a point as spring comes.

Aside from the possible increase in rates, experts are also seeing tighter lending standards this year. In fact, some lenders are already asking for more documentation. A few years ago, a credit report and a paycheck is all lenders would ask for. Now, they require applicants to present two years of tax return, W-2s, two months of statement of assets, and pay stubs.

To add to that, federal mortgage-securer Fannie Mae has increased its minimum credit score requirement last month, which makes it an imperative for homeowners to straighten their credit report before applying for refinance. Specialists explained that previous delinquencies and late mortgage payments can damage a person’s score if they appear on a credit report.

Experts advise homeowners to check their credit report before going to a mortgage refinancer to make sure that they will get an approval. Credit counselor Cate Williams suggests pulling out a credit report and examining it for any item that may cause an alarm to lenders.

Finally, homeowners are advised to be more cautious of their financial decisions a few months before applying for a mortgage since any mishap could hinder their ability to get better mortgage rates. Homeowners who want to know how well they did financially in 2009 are advised to check their credit report.

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