Rates are falling. Time to refi?

Highlights

• Homeowners who qualify for a refinance still must have credit.
• Broker: Only three of 10 potential borrowers qualify for assistance.
• Consider refi if homeowner has fixed-rate over 6 percent.

This week's abrupt drop in mortgage rates will provide an opportunity for some borrowers to refinance. But a large-scale refinancing boom is unlikely.

A good candidate for a refinance is a homeowner who:

• has good credit;
• owns a house that is worth substantially more than the outstanding debt on it;
• earns enough to repay the loan and can prove it;
• isn't overburdened by student, auto and credit card debt;
• has enough cash to pay the closing costs.

In other words, today's refinancer looks more like a typical mortgage borrower in the 1990s than a typical borrower during the go-go period of roughly 2001 to 2006, when the primary qualification to get a home loan was the ability to fog a mirror. Lending standards are more strict now, and the tighter guidelines will prevent a lot of people from refinancing, even if they want to.

"The issue to actually pulling the trigger and getting the mortgage done is less a matter of rates and more of qualification," says Cameron Findlay, chief economist for LendingTree.com.

A lot of today's would-be refinancers will find that they don't meet the qualifications. When homeowners got mortgages two to five years ago, many of them:

• got away with exaggerating their incomes;
• had terrible credit histories;
• made no down payments or tiny down payments;
• overpaid for their houses;
• were allowed to pick their monthly payments, and the minimum payments were so low that the total amount owed kept going up.

Now they can't refinance because they don't really earn enough to qualify for a loan, or they owe more than the house is worth, or they still have low credit scores.