How to Look Before You Leap?

I don’t have an answer for this rhetorical question, so this is more a buyer-refinancer beware comment :  how to get an honest early on answer from your Lender as to whether your refinance is do-able or not.

Assuming your credit and employment documentation are good or better, there appear to be two main factors influencing refinancing your home in the current mortgage market :  market values and foreclosure activity in your community.

Market values are more obvious.  If they’re significantly down, chances are you probably owe more than your house is currently worth.   This has been dubbed being underwater with your mortgage or having an upside down mortgage.   I haven’t seen any successful refinance activity without the Borrower putting up additional equity, which is typically unlikely.

More subtle is the number of foreclosures in your community and in nearby “comparable” areas that appraisers use.    An excessive number of foreclosures forebodes eventual declining market values and Lenders now look at that factor too.

So before you lay out that application fee, you might want to get in writing from your Lender that it’s refundable if your refinance isn’t do-able due to these factors beyond your control :  depressed market value and foreclosure activity.

You’d think it would be logical to perhaps get an appraisal done first, but that’s an out of pocket expense that usually exceeds the amount of the application fee.  But at least you won’t be out both.   If you have a straight forward application, with no skeletons in the closet, I’d look for a Lender who will let you get an appraisal from an appraiser they will ultimately accept, before they take a formal application with an application fee.   I don’t know if there are Lenders who will do this, but I think it’s time for them to step up to the reality plate.

The appraisal will be at your expense, but that’s nothing different from the normal application process.   At worst, you’ll have spent $400 plus or minus to find the true nature of real estate activity in your and comparable areas, and have a sense of whether your refinance application is do-able.

This approach deviates from tradition and is perhaps considered putting the apple cart before the horse, but it seems prudent and less costly in these economic times.




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