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Advice for refinancing at these low rates

By Holden Lewis ·
Thursday, June 17, 2010
Posted: 10 am ET

Mortgage rates held steady this week, the same as the previous week's record low, with the 30-year fixed averaging 4.88 percent in Bankrate's survey.

For the few homeowners who haven't refinanced yet, this is good news. Well, as long as they qualify for a mortgage. Among the qualifications are having a job and owning a house that's worth more than the outstanding loan balance.

In a few days we'll post an article describing the errors that homeowners make when refinancing. The two most commonplace errors are overestimating the home's value and opening new credit accounts.

Mortgage lenders tell me that homeowners overestimate their homes' values all the time. People feel emotional about their houses, and they resist acknowledging that the housing bust has hit their homes, too.

When you buy a house for $400,000 and spruce up the interior and replace the roof and install new landscaping, you want the home's value to increase by at least the amount you spent. In this housing debacle, your home might have lost value, no matter how much money and care you put into it.

If you want to refinance, you have to be hard-headed about the home's current value. Pay attention to offering prices and final purchase prices in your neighborhood, check the Zestimate if Zillow is fairly accurate in your 'hood, and consider asking a real estate agent for an informal opinion. Be upfront that you want to refi and not sell; don't mislead an agent and waste his or her time.

Don't get a credit card, auto loan, store charge card, or buy furniture on credit or layaway between the time you apply for a mortgage and the day you close. Mortgage guru Dan Green advises: "Forget buying a car -- don't even go car shopping."

You should avoid opening new credit accounts because of a new Fannie Mae rule that strongly encourages lenders to check your credit report just before the loan closes. If you opened any new accounts, the mortgage lender has to update your monthly minimum debt payments to see if you can still afford the house payments. It's possible that you could get to the closing table and find out there, at the last minute, that you can't refi.

As far as Green's advice: You know how, when you drop into a car dealership, they ask for your license? They run a credit check on you. Even if you don't buy a car, the lender might get spooked by this entry on the credit report.

I can't emphasize this strongly enough. Many homeowners refinance at the same time they do renovations or upgrade appliances. Do this in the proper order: Refinance first. After the refi closes, sign the contract to install those new countertops and put a washer and dryer on the charge card. But only after closing on the refi. Not before.

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Holden Lewis
August 06, 2010 at 4:58 pm

Like any misfortune, accept it. Not every problem has a solution.

August 06, 2010 at 3:38 pm

Yeah what if you are an honest homeowner and still can't refi? What then? Please answer?

Holden Lewis
June 20, 2010 at 7:03 pm

In this case, the honest homeowner accepts the unfairness of the situation.

June 20, 2010 at 1:46 pm

So what does an honest homeowner do to refi if they are making all their payments on time and are still upside down on their mortgage?