Refinancing Losing Its Appeal to Homeowners

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By Christine DiGangi

There were a lot of positive changes in the mortgage world last year: Foreclosures declined, property values increased, interest rates maintained historic lows, and home sales climbed. As the recovery plowed ahead in 2013, home sales dominated new loans, making up 49 percent of new mortgages in the fourth quarter of 2013, up from 25 percent in the same period the year before.

The rest of those originations come from homeowners refinancing their mortgages. Refinance activity drove new mortgages in 2012, according to the Experian-Oliver Wyman Market Intelligence Reports and Experian's IntelliView tool.

It makes sense: In the last quarter of 2012, mortgage rates averaged 3.36 percent, according to Freddie Mac, and they finished 2013 at 4.3 percent. Rates have fluctuated over the past several months with the Federal Reserve starting to taper its economic stimulus measures, but, in general, they're trending upward. With interest rates on the rise, refinancing may not be as appealing now as it was in 2012.

Increased access to home loans likely contributed to the higher share of new loans last quarter, as well. In 2012, the average FICO score on a completed mortgage was 748, and that average dropped to 727 in 2013, according to Ellie Mae's Monthly Origination Insight Report.

If you're considering applying for a mortgage in 2014, whether to buy a new home loan or to refinance, there are a few things you can do to make sure the process goes as smoothly as possible.

Check Your Credit: If you do the legwork ahead of time, you'll be able to approach the mortgage application process as a prepared, empowered consumer. You'll want to check your credit reports to make sure they're free of errors (credit report mix-ups are fairly common), and you can get a free annual report from each of the major credit reporting agencies.

You'll also want to see where you stand with credit scores, because you don't want to apply for a loan you won't get. Regularly checking your scores will give you an idea of where you fall in the credit score spectrum: Prime, near prime, subprime and so on.

Make Necessary Changes: Once you look at your scores, which you can do for free with the free Credit Report Card, you'll be able to see which areas of your credit profile need attention in order to boost your scores. For example, if you see low grades in your debt usage or payment history, you can start improving your scores by immediately working on paying down debt and making sure all your bills are paid on time. You want to present a lender with the best credit score possible when it comes time to apply for a mortgage.

Get Organized: Lenders are required to document a lot of things when processing your mortgage application, especially now with the qualified mortgage rules that went into effect this year. It's crucial to show your ability to repay your loan, so make sure you can accurately document your income and debt obligations that will affect your ability to make mortgage payments.

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