Bank Notes

It helps to be a completely average Joe or Jane with a good salary and not much debt if you want to refinance your home to take advantage of the still historically low interest rates out there.

Local mortgage brokers and bankers can help you navigate through the stricter federal qualification rules, from lower debt-to-income ratios to better credit scores.

“There’s really a very minimal specific group that qualifies,´ said Joshua Stevens, owner of J Stevens Mortgage in Boulder. “It’s harder than it was to get approved. Up until about three years ago, over 99 percent of people were getting approved; now it’s something like 50 percent.”

With loan rates still hovering around the 4.5 percent to 5 percent range at the moment, there’s still plenty of opportunity to save money, though. The general industry rule of thumb is that it makes sense to try to refinance a loan if you can lower your interest rate by 1 percent or more – usually about a savings of $120 to $200 or so per month, depending on your tax and insurance costs.

1. A more strict debt-to-income ratio is the biggest hurdle homeowners face. That’s the ratio between how much you owe each month on personal debt and how much you earn. Add up monthly expenses such as car payments, credit card payments, student loans and rental or mortgage payments to figure out your debt. Divide it by your salary and other income.

The ratio should be no higher than 36 percent, although government programs such as Federal Housing Authority mortgages and Veterans Administration mortgages may allow a ratio of up to 41 percent. Just a few years ago, the ratio could be as high as 55-60 percent, according to those in the industry.

Credit scores are also being scrutinized more closely, Stevens said.

2. An “unusual” employment history also can create problems, said Lou Barnes, a mortgage broker at Premier Mortgage Group in Boulder. The Boulder Valley’s bustling high-tech industry is the biggest factor to blame for many workers’ non-traditional career paths, Barnes said.

“So long as you don’t have to be self-employed, have an unusual income stream or a quirk of any kind, you can qualify,” Barnes said. “A disproportionate number of people here are unusual, though.”

Finally, if you’re “in distress” or “near distress,” in making your mortgage payments, it’s probably near impossible to get refinancing approval, according to Barnes. “In distress” means you’re behind in making payments, even by one month.

“A borrower in or near trouble should contact their existing loan servicer,” Barnes said. “Just remember that the servicer is not a lender. It’s a data-processing group trying to be useful to households in or near default and to requalify them and rewrite their mortgages in ways that help them avoid foreclosure and stay in their homes.”

Time are tight

Just as many homeowners have had to tighten their belts, so have area mortgage brokers. In general, they say they’re doing a lot more work for a lot less money, sometimes so much less money that they worry that they could go out of business.

Stevens said he saved up during the good times to see himself through the bad, but points out that he’s one of the remaining independent companies in the area.

“I once closed 25 loans per month, and now with the paperwork, it’s hard to close more than four per month,” Stevens said. “It’s like tumbleweeds going through the office. Fewer people have a reason to refinance.”

In fact, few homeowners would be able to requalify for loans they already have, Barnes said.

“In some cases, it’s worse than it sounds, but with the credit contraction, the housing market cannot absorb the existing inventory,” Barnes said.

Having investment or capital gains income is no guarantee of loan approval either, Barnes said. An investor who sold a law practice elsewhere and wanted to put down $200,000 and get the rest on terms to buy a $400,000 Boulder home had problems, Barnes said.

“If you would like to rely on investment income, better forget that … and additional investments and additional capital gains, forget that as well,” Barnes said. “There is no loan for any terms.”

Barnes himself scrambled to deal with industry changes. He and a partner owned Boulder West Financial Services from 1990 to 2009. They sold, his partner retired, and Barnes and his sales team moved to Premier.

“Premier is a much larger company with a larger capital base. Its size makes it able to cope with regulatory burdens, which can only be done with scale,” Barnes said.

Beth Potter can be reached at 303-630-1944 or via e-mail at bpotter@bcbr.com.

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