Refinance: What you should know
What’s changed with home refinance?
Mortgage bankers and brokers used to build a relatively large customer base which would afford them a great deal of comfort in knowing they also had a solid income for the next several years.
The reason being, a large portion of a banker’s database was repeat business through refinance. Homeowners continuously were refinancing to get better rates, more money, or purchasing and flipping investment properties. Unfortunately today much of this is gone due to declining home values and new regulations.
Declining home value and scared banks
Three years ago banks had no problem issue money in the form of loans to homeowners in excess of 100 to 110% of a home’s given value. At the time, home values were rising and banks looked at their loans as an investment. The 110% loan would eventually fall back down to a 90% over time.
This of course went away when the home values started dropping, and now the 110% loan jumped up to 150% Loan to value. The banks investments had gone terribly wrong. Today banks keep this mind and now have gone to the other extreme of never lending over 90%, hoping that the markets do not fall any further.
12-month chain on title
To avoid flipping, which is when a home owner buys a home in a distressed sale for less, then refinances at its true value to make money, banks have instilled a 12 month chain of title, meaning that a homeowner needs to be on title for 12 months prior to refinancing the home. Once again this protects the bank from providing homeowners with more money than they have in the home.
In years past, homeowners were taking money out of their properties as fast as the market would let them. In some cases, homeowners would refinance their homes 3 times a year as the market tolerated the growth. Today, by discouraging refinancing, banks hope to cool down the market and stabilize it.
Who offers home equity loans?
For many people simply finding a bank that offers a home equity loan can be challenging. Many of the financial institutions that so readily lent them out two years ago, just don’t offer them anymore. And those are the lucky ones; the other side also don’t offer home equity loans, but that is because they are no longer in existence.