If you tried to refinance during the real estate boom, you might remember waiting weeks for your lender to return your calls. That has changed since the subprime bust. Traditional borrowers are in the driver’s seat-those with good credit, not much debt and some equity. Those are the people lenders are competing for.
Refinancing has increased as rates have decreased. If you are considering it, you’ll probably get better service, and you might have enough clout to get fees waived or even negotiate a slightly lower interest rate, according to many in the industry. It’s certainly worth a try.
In the heyday, 40% of the mortgage business was from subprime borrowers, business which has since dried up. Lenders are left to compete for the traditinal borrowers that are left; they are the key to survival for many firms today.
Here’s what lenders are looking for:
- Solid credit scores. A credit score of 620 is no longer good enough, now lenders like to see 680 or higher on a scale of 850. (Not unusual: 1/2 of consumers have a score of 720 or higher, according to Fair Isaac, creator of the widely used FICO score.)
- Must have equity. It’s not as easy to borrow the full value of the house. Now the ideal refinancing candidate has at least 20% equity in the home. The loan should be no more than 80% of the home’s newly appraised value.
- Good debt-to-income ratio. Lenders look at the size of your monthly debt payments in relation to your income. In the past, debt couldn’t be more than 55% of gross monthly income, now debt needs to be about 42% to 45% of income.
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