Ask Farnoosh: Excellent Credit but Can’t Refinance

Rhonda emails: I have excellent credit (between 850-925), a job which well affords me to be able to make mortgage payments, and have NEVER been late on a payment, hence the credit rating. I currently have a rate of 4.75% and would like to lower my rate. I am told the loan/value on my house will not allow me to refi. What can I do? Thanks.
 
Hi Rhonda,
 
If you were told you could not refinance, it’s probably because the value of your home is less than your outstanding mortgage. It’s a common issue among homeowners, affecting those with even the best credit scores, says Shah Tehrany, managing director at Franklin First Financial. Banks like to see that you have some skin in the game and home equity of at least 20% before lending. The exception is if your mortgage is a conforming loan, backed by Fannie Mae or Freddie Mac. In this case, you may be eligible for the Home Affordable Refinance Program (HARP), where the value of the home is irrelevant. You can check by visiting makinghomeaffordable.gov or knowyouroptions.com where you can look up your loan number.
 
If you’re not eligible for HARP and you do, in fact, lack enough equity to refinance, Keith Gumbinger, vice president of HSH.com, a mortgage information website, suggests you consider a “cash-in” refinance. “Essentially, the borrower is making a new down payment so as to start with an equity stake,” he says. “These are and have been employed by many homeowners in recent years not only in order to refinance, but also to buttress an equity stake” so you won’t need mortgage insurance. In theory, the savings of the refinance should "pay back" the money needed to cash in over some period of time. Think of it as additional closing costs, he says.
 
On a final note, if just one lender rejected you based on the value of your home, do shop around for more opinions. “If she’s in a market with strongly rising home prices, which we currently see in much of the country, the key is an accurate appraisal by a valuator with local market expertise,” says Walter Molony, spokesperson at the National Association of Realtors. “Lenders use appraisal management companies who sometimes hire appraisers without local expertise or full access to MLS data, which would help them distinguish between discounted foreclosures and traditional homes in good condition, to identify comps in making a valuation.” Speak with community and regional banks, as well, that may have more knowledge of local prices.
 
Stephen tweets: I noticed that some gas stations have 2 prices – cash and credit. If you pay cash, it is cheaper per gallon. Is this legal?
 
In years past this was prohibited, but following a recent federal antitrust case, merchants are now allowed to conduct “dual pricing” and give customers a better price for using cash. The reason is credit card companies charge merchants a “swipe fee” each time a customer pays with a card, which hurts profits. “Swipe fees average 2%, or about seven cents per gallon at today's prices,” says Jeff Lenard, spokesman for the National Association of Convenience Stores.
 
At gas stations, dual pricing is not uncommon and the de facto cash discount is about five cents per gallon, he says. “People are very price conscious when it comes to gas… We also know the biggest predictor of how people will buy gas is how they made their last purchase. If you paid by cash, you’ll likely do it again. It’s a very routine system.”
 
Got a question for Farnoosh? You can reach her on Twitter @Farnoosh or email her at farnooshfinfit@yahoo.com.