I’m getting a lot of phone calls asking about articles people are reading in different publications. I’m also talking to people who like most of us are hearing all of the terrible stories on the TV news regarding the mortgage/credit crunch but not paying complete attention because it doesn’t affect us. That may be wrong…you may think it doesn’t affect you because you’re responsible and have great credit in real estate.
What I’m telling you is you may want to check around if you have an ARM coming due and see if you’re as good as you think you are. Better safe than sorry. Here is my advice. If you have a 3-5 or 7 year ARM (adjustable-rate mortgage) that is coming due in the next 12 months it might not be a bad idea to give your lender a call and see what your best course of action is.
The reason I want you to know this and do this is with all the horror stories we are hearing about foreclosures and short sales the banks are protecting themselves and tightening up the criteria in order to purchase AND refinance. If you were banking on the equity in your home to help you along when you refinance it may not be enough 12 months from now.
What was 5% minimum down is quickly becoming 10% down…….and if your property is in a declining market then there is a chance you will need to add another 5% on top of that. So what once used to be 5% down and something you can handle could quickly become 15% and something that will prevent you from refinancing.
How is that helping???
I know the banks are in as much trouble as a lot of homeowners but a lot of these people are trying to refinance into 30 year fixed mortgages. These people are trying to do the right thing…..the kicker to this whole thing is these decisions are not being based on your credit score.
While this is still important in getting the best rate it is not swaying the banks on their down payment requirements. They are making these decisions on the area, not the borrower’s credit score.
So talk to you lender is you’re planning on refinancing and ask the following questions:
- How much am I going to need to put down in order to refinance?
- Can I use the equity in my house and will it be enough?
- What closing costs are associated with refinancing? Can I roll them into the mortgage?
- What is a declining market? Will it have an effect on my refinancing?
- Should I do this now before things get tougher and I may not be able to refinance?
- What is the worst-case scenario?
I do this in no way to scare you but to make you aware.
This type of situation has mainly had an effect on people who put little to no money down within the past 3 to 5 years….did interest-only loans…..and did ARM in order to keep the payment as low as possible. In order to refinance, they will need to use the equity in their home in order to put money down again and acquire a fixed mortgage. As we’ve been hearing the equity may not be enough.
Hope this helps….it is getting tough out there and it in many ways has nothing to do with you or your ability to pay the loan back. It has to do with the fact that most of Chicago and the Suburbs of Chicago are in a declining market and the banks are freaking out!!! Let me know if you have any questions.