Jump those barriers to refinancing

Hand holding pen and signing mortgage

Record low mortgage rates make it tempting to refinance, but not everyone can.

Three barriers are keeping many homeowners from lowering their monthly payments, says Marietta Rodriguez, national director of homeownership and lending at NeighborWorks America: credit scores, home values and closing costs.

Barrier 1. It’s more difficult to qualify for a mortgage these days than ever before.

Prior to the housing bust, a credit score of 650 got you the lowest interest rate available. Today, you need a much higher credit score -- often well above 700 -- to get the best rate possible.

If you have to pay a higher interest rate because of your credit score, refinancing might no longer save you money.

You can’t erase accurate credit information, but do what you can to boost your credit score.

Barrier 2. Home values have fallen, and you might not have enough equity to refinance your house.

Just like you needed a down payment to buy your home, you need equity if you want to refinance.

Without 20% equity, the best mortgage rates are out of reach. Ten percent gets a seat at the refi table.

If you’re close to having enough equity to refinance, ask for a review appraisal or bring cash to the closing table to pay off some of your old mortgage.

If your home value is way off, ask a local real estate agent to send you a monthly email of all the homes that have sold and closed in your neighborhood. That will tell you when home prices have risen enough to give you the equity you need to refinance.

Barrier 3. A homeowner who can't bring closing costs to the table -- typically at least 1% of the refi loan amount -- also can't refinance into a lower mortgage payment.

Household income is still not robust, and while savings rates have increased since the recession began, not many homeowners have the thousands of dollars in cash required to pay for closing costs.

If you don’t have extra cash now, go over your family budget to see if there’s a way you can set aside a little bit of income each month to put away toward closing costs for your refinance or to pay down your mortgage faster.

If you can pay just $100 a month more on a $200,000, 30-year, fixed-rate loan, you can shave more than five years off your mortgage payments.

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