mortgage

Refinancing: great option for some

Qualifying at a cost

Other homeowners who have credit scores in the 600s and a modest amount of equity may be able to refinance, but at a higher cost.

For example, mortgage loan providers Fannie Mae and Freddie Mac recently announced that borrowers who have credit scores of 680 and below will have to pay a surcharge that could add thousands to the cost of the loan.

"In the past, lenders always considered anything above 620 good," says Hanzimanolis. "People come in today with a 675 and the rates that the banks have to offer are so much higher that it doesn't make sense for many customers," he adds.

There are also fewer options for people who have unconventional financial situations such as self-employed individuals. "There are still programs out there, but they're being offered by fewer lenders," Hanzimanolis says. Such programs typically require higher credit scores and a larger down payment, meaning there is less money available to borrow if a homeowner is refinancing.

Finally, consumers who have second mortgages on their homes may run into a snag. In order for a consumer to refinance a first mortgage, the holder of the second mortgage must agree to " subordinate" the second mortgage to the new first mortgage. That decision is entirely up to the second mortgage holder. If that lender refuses to subordinate the second mortgage, the only option the consumer has is to qualify for a new first mortgage that will pay off the second.

For people who have limited options, it might make more sense to use a mortgage broker rather than a bank, says Hanzimanolis, since brokers work with a variety of lenders and typically offer more loan products.

Pick of the litter

For those consumers with more than 20 percent equity in their homes and credit scores in the 700s or higher, the world of refinancing is their oyster.

"There are folks that have purchased their property 10 years ago and housing prices have escalated astronomically. Those people who brought those properties -- even with property declines -- still have that level of equity that if they choose to refinance, it's still something they can probably do," says Vasquez.

Consumers with equity and excellent credit will also get the lowest interest rates, whether they use a bank, credit union or a broker, so it typically does not matter as much where they apply for their loan.

A good place to start your refinancing journey is with your current lender. But it never hurts to "shop around and compare," says Hanzimanolis.

"Any good mortgage originator whether it be a bank, a credit union or a broker, should have no problem offering you a complete good faith estimate at your initial sit-down with them, whether you've officially applied or not," he says.

Tamara Holmes is a freelance writer based in Maryland.

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