Refinancing should be easy, right? If you have been making your payments on time on a higher rate, why wouldn’t someone refinance you to a lower rate? Your payments are on time, so who cares about the rest?
The banks care. The banks want to make sure they are taking on a sound risk, looking forward. It is nice that you have made your payments on time, but going forward does it look like your employment is solid, is your credit score still acceptable, and do you still have equity in your home?! Even if you have made your payments on time for years, if your credit score is low, if you have had a drop in income, or if your home has little or no equity; getting a refinance will be anywhere from tough to impossible.
I have worked with a homeowners insurance agent for many years, and she came to me to refinance her home in Leesburg, Virginia. You would think someone who has worked closely with mortgage professionals for many years would know a bit about how a refinance works. When I realized the value of her home had fallen, I asked more questions to see if we were proceeding on safe ground. I did not want to take an appraisal and credit report fee from her, and 4 weeks later come up empty handed with a loan rejection. As I asked more questions on the property value, she said:
“I don’t think there is any way for us to know the exact value since we’re not real estate appraising experts. House prices around here are all over the place. We might just have to stick with the mortgage we have now. I thought we’d just be able to shop rate, didn’t realize all the rest of it came into play.”
This is typical thinking on a refinance for some reason. It is good to remember that “all the rest of it” always comes into play when a bank is lending their money, and they will always want to check property value, credit score, income, debt ratios, etc.