Homeowners Can Get Lower Mortgage Rates With Some Work

Many homeowners are refinancing mortgages because of the tough economy. There are some ways to get a lower rate, but it will take some work.

Donna Back recently refinanced her two-bedroom southwest Charlotte townhome and got rid of her old 7.5 percent mortgage.

"I was able to reduce my rate to 5 percent which was a substantial savings,” she said.

Back’s now saving $240 a month on her $85,000 FHA mortgage. That's a federally backed loan with certain restrictions. Because she was already an FHA customer, she qualified for a streamline loan and had to provide less documentation this time.

“Mine was very simple. I didn't have to have an appraisal because it was an FHA streamline refinance,” she said.

Homeowners who aren’t in Back’s ssituation, will need pay stubs, bank statements and tax returns to convince the lender you can and will repay a new loan.

Harvey Goldberg is president of Dover Mortgage Company.

"You want to make sure they have the income to support the house, if they don't have the income you're doing the wrong thing for the borrower and the seller and the company,” he said.

He said homeowners will likely be required to make a down payment of at least 3.5 percent.

“It’s a huge important piece, to as they say have some skin in the game. It gives you a little bit more reason not to walk away from something," he said.

Also, having some equity in the house is key to getting a new loan. Homeowners should be okay if their present mortgage is less than 80 percent of their home's value and they’re current on payments.

The next crucial hurdle to getting a loan is to have a solid credit score.

"Right now generally its 620 minimum credit score and that's really the base line,” Goldberg said.

Goldberg said even with a 620 score homeowners may have to pay extra points or a higher rate.