Can you Take Advantage of Today’s Refinance Opportunities?

The phones are ringing off the hook for lenders as the media reports historically low interest rates. Is this a good time for you to refinance?

Here are the three basic criteria you need in order to jump on this bandwagon:

• A good credit score
• Equity in your home
• A loan of no more than the current conforming limit in your county:  $625,500 in the close-in DC Metro area (where I live) and $417,000 in Austin (where I wish I lived!)

Lenders are reporting that almost 25% of the people who contact them and qualify under #3 are ineligible because of #s 1 or 2…or a combination of both. If, for instance, you purchased your $400,000 home in Austin in 2005 or your $500,000 home in the DC area with little or no money down, you probably don’t have enough equity to qualify for a refinance. Depending on where you bought, it is likely that your house may not even be worth the purchase price and when you combine that with little or no money down, you may even find yourself “upside down” on your loan.

Buyers who purchased in 2008 seem to be doing better. My lender friends in DC report that most of these properties are appraising at purchase price, so these buyers (most of whom bought in a climate that required a down payment) are able to refinance and see fairly substantial savings. Perhaps the same is true in many Austin neighborhoods.

Homeowners with “jumbo” mortgages (defined as anything over $625,500 in the DC Metro area and $417,000 in Austin) are not reaping the benefits of lower interest rates. The differential between “conventional” and “jumbo” rates is dramatic and while the former is historically low, the latter has not begun to recover from the financial crisis. Hopefully, this will change in 2009.

I know in our area it would be tremendously helpful, for both refinances and for purchases, if the maximum conforming amount were to be raised. For at least part of 2008, our maximum was $729,750 and there is some discussion that the Obama administration will bring this back.

In Austin, it looks like there has been little change with the $417,000 threshold for a while.

Thoughts on whether this number should be raised?

Licensed in Virginia, Maryland, and D.C., Kevin Koitz, with The Koitz Group @ Long and Foster specializes in Washington DC real estate and the surrounding Montgomery County Maryland suburbs of Bethesda and Chevy Chase.