Got Great Credit? It May Not Be Enough to Refinance


By: Marc Roth - You'd like to believe a couple with excellent credit scores, and equity in their homes, would find it easy to refinance. You'd be wrong.

I have been writing for months that people with solid jobs and a history of paying their bills on time can refinance and save some money-if they are willing to do a little bit more work than they have in the past.

But apparently, I have been downplaying that "do a little bit more work" that lenders are requiring borrowers to perform, in light of the housing bubble bursting.

I am going to let one reader tell his story to prove things are more awful than I believed and then tell what you have to do to deal with this far more difficult world.

The reader-let's call him Brad (I am going disguise the personal details; everything else is exactly the way he told it)-sent me the following e-mail:

A Three-Home Marriage"I did some research, after I read your column in November about how interest rates were going to go up, and determined it was a good time to refinance one of our homes. (Our situation is a bit unusual-we have three places. We need two because it is a commuter marriage. I work in San Francisco; my wife runs a 20-person company in a Los Angeles suburb. And we bought a place just south of San Diego where we plan to retire in five years or so.)

"I applied in early November, and at the very end of March-yep, more than four months later-I was told we were approved. We would be able to refinance our San Francisco place. We owed about $400,000 and had a 15-year mortgage at 5.75%. Our new rate was going to be 4.75% for 15 years, with a NEGATIVE 0.5 in points. The bank-and it was one of the big ones-was going to rebate about $1,600 in closing costs.

"Two days before the closing, I got a phone call. The loan officer was apologetic, but he said he just got a note from underwriting that he had to raise my rate an eighth and eliminate the rebate on the points. When I asked why, he was told they decided the San Francisco place had to be an investment property, because no one could possible own three homes without at least one being a rental property, and mortgage loans on investment property carry a higher rate.

"I could understand that, if a) they hadn't seen copies of our tax returns-we sent them for 2009 and 2008-which showed we had no rental income, or b) if they hadn't asked for a letter from our accountant asking him to swear the returns were accurate. (The reason they said they asked for the note from the accountant was, they said, they were concerned I was self-employed. I am and have been for 17 years.

"Marc, what gives? My credit score is 808-according to what the bank told me-and my wife's is 733. They put me through all kinds of hoops-letters from my CPA; detailed tax returns; countless phones verifying this and that. ..."

"A Very Big If"

I'm sorry Brad, and if it's any consolation, you're not alone. The process of refinancing-or even trying to get a mortgage in the first place-has gone from "ultra-simple paperless" to extremely complicated investigative analysis.

Obtaining a loan or a refinance is still relatively straightforward if-and it has become a VERY BIG IF-you have very good credit and your situation is uncomplicated. Simply put, if you have evidence to support that you have a steady, well-paying job, good credit, and plenty of equity in the home you are trying to refinance (or sufficient down payment for the home you are buying), your loan will probably get done in a timely manner without much of a hitch.

If your situation, however, is a bit more complex, like Brad's-remember, Brad has three homes and is self-employed-then you may be working a lot harder and waiting a lot longer to get your deal done. These lenders, and more realistically the administrators and underwriters who do all the work for the lenders, are overworked and understaffed. They would love to look at your file, find that it is simple, approve it, and move on. They don't want that file cluttering up their desk, and they don't want you and all the other interested parties hassling them day in and day out about when it's going to get done. They just want it off their desk.

Unfortunately, due mostly to the transgressions of past, these administrators and underwriters are under a microscope and must make sure everything is picture perfect.

Shop, Shop, Shop

What can you do? First and foremost, know your situation and shop your loan accordingly. If your situation is clean and simple, certainly shop for the best rate. If your situation is more complicated, then shop for a mortgage broker with the reputation of being a great facilitator or visit your local banker, who may be more apt to give you personal attention.

Equally important, make sure your financial life is well-organized, so you provide everything under the sun up front, or at least be ready to provide it on the asking.

Finally, be patient.

We are in uncharted territory, and navigation is anything but simple. As you've seen, however, long-term interest rates have already risen almost three-quarters of a point since Brad first applied, and as I wrote a couple months ago, they are going to continue to rise. It argues for refinancing (or buying), if you can.

Marc Roth is the founder and president of Home Warranty of America, which touches just about every part of the real estate industry since it sells through builders, real estate agents, title companies, mortgage companies, and directly to consumers.

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