Refinancing not for everyone

Refinancing not for everyone

CHICAGOIf you have a credit score of 620 or less, you will not qualify for anything. Watching the hype and listening to the politicians is not the same as talking to your real mortgage broker when it comes to re-financing a mortgage. With all the money floating around to different banks, it would appear that money is easily available for re-financing and buying the next house. Guess again.
What piece of the Stimulus package are you thinking you are going to get to help your financial situation? The only “Stimulus Package” that you might qualify for in our recovery mode is to re-finance your mortgage. You better take advantage of it, if you can.
Check your credit
Credit score is 620 or less? You should have figured that maxing out your credit cards and taking out some second mortgages to get that must-have BMW would catch up to you – it has.
In talking to a long-time source and mortgage banker, Larry Goldberg, who is Branch Manager at Home Savings of America in Huntley, Illinois, I was surprised to see what was available to the people who have a house with the following background that I would think would be typical for the “average” borrower:

  • Pays mortgage on time
  • Is not over-extended
  • No second mortgage

Goldberg, who processes applications nationally, said that some types of mortgages that you could have gotten a year or two ago are not even available. He was not too enthusiastic about any special program for the average mortgage holder. He also pointed out the fact that many who got into mortgages several years ago, qualified because they were in a higher-paying job.
Plus, the criteria to qualify for a mortgage have really tightened up. He said the only people getting the “good rates that you see advertised” are those that have a credit score of 740 or better.
Besides credit scores, other underwriting factors can add on fees or push you up into higher rates for a mortgage. Depending on what state you live in, this will make a difference in what type of “Risk Factor” fee is attached onto the upfront fees. Illinois is sort of in the middle of risk, so its fee is not the highest.
What if you got a mortgage based on a salary of $90,000, but now you are underemployed and only make $45,000? Chances are, you are stuck in the mortgage that you negotiated several years ago because now you do not qualify as your income is severely lower. I know many people in that category.
So much for the vast majority trying to scrape by who did not over-extend themselves.
There does not seem to be a “help package” for anyone keeping up, even though they could be stretched very thin and need relief.
Midnight madness – let’s make a deal
Of course all the real estate experts on after midnight are telling you how to buy foreclosures and how now is the time to buy properties with no money down to make all those killer super-deals, but the reality is “Cash is King”.
Many foreclosures and those about to be foreclosed on have a “cash only” stipulation tied on to them. No bank is going to give away a $600,000 house for $1,300. If you see that on TV, you must be watching the Fantasy Channel because no banker is named Monty Hall.
Maybe foreclosures were a hot commodity when there weren’t so many on the market but now, there are a lot more foreclosures than “qualified buyers”. Goldberg claimed that one out of every ten houses are in foreclosure. There are also less qualified buyers out there.
What is a qualified buyer? You may think you are one but in today’s market? Guess again.
You can get financing if…
Your credit score is high. How high? Try 740 or more. That is a pretty high credit score and many people are not close. If you do not have that good a score, be prepared to pay points or extra fees on the loan. Some banks don’t even want to bother with you.
There are several key issues facing every borrower:

  • Personal situation (your job, your capability to pay, your credit score or ranking)
  • Lack of products (No more “No Doc loans”, no more borrowing over the value of the property)
  • Cost of borrowing (what are all the associated fees and tack-on costs being added?)

You may have a job and make a decent salary, but if your credit rating sinks below 700 you will have a harder time getting a mortgage. You can if you want to pay points (One or more percent on the total value of the loan. (I.E. $200,000 mortgage with one point added – that means an extra $2,000 upfront.)
There are also formulas that have been put in place to provide more scrutiny as to the viability of you and your “deal”. The ratio of loan to value is also a checkpoint. 80% of the appraised value is fine, but don’t think you are going to easily get 100% or even 90% of the value of your owner-occupied house. With second homes, the limitations are even stiffer as to cash outs and refinancing.
Real estate market weak?
The Chicago Tribune had a full-page article on the rise in mortgage foreclosures this past Sunday. Where have they been?
Back in December 2006, I focused on the rise in foreclosures in many, if not all municipalities warning that residential foreclosures were raising rapidly.
Many people overbought and now the market is correcting itself. As the statistics show, other states have a lot of foreclosures. Illinois has its fair share as well and they are on the rise.
That column was followed up with several columns in 2007 and 2008 as the real estate market continued its downward plunge caused by the vortex of more people losing jobs with the end result of being less capable of paying off their current mortgage.
There are many clear indicators that say now is not the time to sell a house. Offers are weak and any serious buyer is looking for a fire-sale price. As for re-financing, there are some that are stuck with mortgages they cannot re-finance due to their lack of income from lesser paying jobs.
Beware of Florida and other states with seaside properties offering a “great deal of 50% off a prior value of $1,000,000” but must be a cash offer. They want to “cash out with $495,000, but you are not getting it appraised. That great deal of 50% off might be way overpriced. What if the condo or townhouse gets appraised at $375,000?
Remember basic economics of supply and demand. If you have one out of every ten houses in default, finding a great deal is easy. Steer clear from the “this is the lowest price possible and won’t last” sales pitch. Remember that those were the same properties that were zooming 30% a year in the boom days. Now those prices have fallen down back to earth.
Carlinism: Houses have gone from your largest single investment to something to just live in.
Recent columns by James Carlini

James Carlini is an adjunct professor at Northwestern University, and is president of Carlini & Associates. He can be reached at or 773-370-1888. Check out his blog at
James Carlini will be the Keynote speaker at the Service Industry Stimulus Summit to be held on April 20-21, 2009, Hilton Milwaukee Center, 509 W. Wisconsin Avenue, Milwaukee, Wisconsin.
James Carlini will be a keynote speaker at the upcoming Broadband Properties SUMMIT ’09 in Dallas, April 27th -29th discussing “Intelligent Infrastructure”.
This article previously appeared in, and was reprinted with its permission.
The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC.