Refinancing a home mortgage is more complicated than ever. Before the housing crash, all it took to get a home loan refinanced was clean credit, a job, a current tax assessment, and $250 in closing costs. Refinancing a property these days now requires thousands of dollars in closing costs and reserves along with a long list of conditions.
My husband and I have been in the process of refinancing one of our rentals for the past six weeks. Even though we have squeaky clean credit and a bit of cash in savings, we almost didn't qualify due to some rather surprising reasons. Here they are.
Extremely low appraisal. Because we live in an area that was severely impacted by the housing crash, our properties are currently assessing at half of their 2006 value. While I knew that our rental probably wouldn't appraise for more than the current tax assessment of $160,000, I didn't expect an appraisal of $130,000. Since we were only looking to refinance an existing $100,000 loan, the appraisal was adequate (but just barely) to swing the deal.
Not enough cash reserves. Until a few years ago, lenders didn't look at a borrower's cash reserves when refinancing. These days, underwriters are requiring 6 months of cash reserves for the rental property being financed and additional 3 months of reserves for the primary residence (even if it isn't part of the refinance).
Joint accounts with our kids. I'm a military mother of two sons who are currently serving overseas. Since neither of them are married, I'm listed on their bank accounts as a cosigner so that I can transfer funds or pay their bills as needed. One surprising new requirement by Fannie Mae was a signed and notarized statement from both my sons to the effect that I had complete access to these funds. Had either one of my sons been on special assignment and unavailable this month, the refinance would have been sunk.
Wouldn't include all types of income. Part of our household income is tax-free gifted income from a family trust. In past years, we could use this income to qualify for loans. Our bank's position now is "if the income doesn't show up on the tax return, you can't claim it" which really threw our debt to income ratio off balance. Fortunately we still qualified but only just by a mere point.
From what I've been hearing from friends who are also refinancing, my bank's requirements for a refinance are extreme to the point of being ridiculous. You can be sure that the next time around I plan on shopping the competition for better terms, less upfront costs, and a simpler process.
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