Getting a Cash Out Refinance Can be Harder Than You Think
You have great credit, outstanding equity, a great job that youve had for many years, and yet you are confounded when the bank takes months and months to decide on whether or not it will approve your application for a cash out refinance. The disturbing truth is that although we the taxpayers have bailed out the banks with billions and billions of dollars, they are still holding back on giving out the credit that homeowners and businesses need to get by and grow. This is a shame and homeowners are getting the wrong end of the stick from banks and lenders at a time when they need help the most. Homeowners are increasingly frustrated at their inability to take a cash out refinance on their accrued equity, a process that was much easier just two short years ago.
The main problem is that banking regulations and in particular credit requirements have tightened up following the meltdown that began in late 2007 when tens of thousands of homeowners suddenly found themselves on the verge of foreclosure. When hundreds of thousands of people are losing their jobs on a monthly basis, and the unemployment rate is higher than it has been in over forty years, the end result were homeowners with drastically lowered incomes. Many of them also were stuck in bad loans and toxic loan products like Pay Option ARMs (Adjustable Rate Mortgages) also known as Negative Amortization loans. These types of loans have mostly disappeared but you still need to watch out for them.
Because the minimum payments on these loans did not pay even the Interest Only portion of their mortgage, the deferred interest was then tacked on to their principal balance. Many of the people who were in these loans soon found themselves paying on loan balances that were larger than the actual value of their homes. This is known as being Upside-Down on your mortgage. Soon many hundreds of thousands of these homeowners found themselves facing foreclosure and actually losing their homes to the lender.
Lenders immediately reacted by tightening the guidelines and requirements that borrowers had to provide in order to get rate and term refinancing and especially for a cash out refinance. Since giving cash to the borrower on his equity is much riskier for the bank because of the volatility and recent crash of property values in the U.S., it is much more difficult for even the most qualified borrower to get a cash out refinance in todays tight money, difficult credit requirement environment.
But homeowners and borrowers should take heart. If you have enough equity you can still get a limited cash out refinance, as long as you can prove what the use of funds will be for. This may require getting written bids from contractors prior to applying for the loan itself. Banks are much more lenient if you are improving the property and adding to its overall value. After all, they may very well be owning the property one day soon.
You have great credit, outstanding equity, a great job that youve had for many years, and yet you are confounded when the bank takes months and months to decide on whether or not it will approve your application for a cash out refinance. The disturbing truth is that although we the taxpayers have bailed out the banks with billions and billions of dollars, they are still holding back on giving out the credit that homeowners and businesses need to get by and grow. This is a shame and homeowners are getting the wrong end of the stick from banks and lenders at a time when they need help the most. Homeowners are increasingly frustrated at their inability to take a cash out refinance on their accrued equity, a process that was much easier just two short years ago.
The main problem is that banking regulations and in particular credit requirements have tightened up following the meltdown that began in late 2007 when tens of thousands of homeowners suddenly found themselves on the verge of foreclosure. When hundreds of thousands of people are losing their jobs on a monthly basis, and the unemployment rate is higher than it has been in over forty years, the end result were homeowners with drastically lowered incomes. Many of them also were stuck in bad loans and toxic loan products like Pay Option ARMs (Adjustable Rate Mortgages) also known as Negative Amortization loans. These types of loans have mostly disappeared but you still need to watch out for them.
Because the minimum payments on these loans did not pay even the Interest Only portion of their mortgage, the deferred interest was then tacked on to their principal balance. Many of the people who were in these loans soon found themselves paying on loan balances that were larger than the actual value of their homes. This is known as being Upside-Down on your mortgage. Soon many hundreds of thousands of these homeowners found themselves facing foreclosure and actually losing their homes to the lender.
Lenders immediately reacted by tightening the guidelines and requirements that borrowers had to provide in order to get rate and term refinancing and especially for a cash out refinance. Since giving cash to the borrower on his equity is much riskier for the bank because of the volatility and recent crash of property values in the U.S., it is much more difficult for even the most qualified borrower to get a cash out refinance in todays tight money, difficult credit requirement environment.
But homeowners and borrowers should take heart. If you have enough equity you can still get a limited cash out refinance, as long as you can prove what the use of funds will be for. This may require getting written bids from contractors prior to applying for the loan itself. Banks are much more lenient if you are improving the property and adding to its overall value. After all, they may very well be owning the property one day soon.