5 Big Things Standing Between You and a Refinance

5 Big Things Standing Between You and a Refinance

NEW YORK (Credit.com)—Mortgage rates are beginning to creep up, but they're still well within the kind of range that makes longtime homeowners shake their heads in disbelief.

The average interest rate on a 30-year fixed-rate mortgage hit 3.63% for the week of March 10, marking the highest point since last summer. So while a seller's market may be taking shape, it's still a great time to shop for a mortgage, especially a refinance. That's why it's so frustrating for homeowners who can't get on the bus.

So what's keeping you from getting a refinance loan right now? Here's a look at five of the most common culprits:

So-So Credit

Same as it ever was when it comes to mortgage lending -- you're going to need to meet a lender's qualifying credit score for a refinance, which in many cases will be higher than what you'd need for a purchase loan.

For conventional refinancing, you're likely looking for at least a 740 score to really capitalize on current rates. The bar won't be quite so high if you're going after a government-backed option like an FHA or VA loan. Make no mistake: A loan program may not have a credit score requirement, but the lenders who actually issue loans certainly will.

Right now, for example, VA lenders are generally looking for at least a 620 score. But you'll more than likely need at least a 640 to start the refinance conversation.

Your Home Is Underwater

Values are starting to rebound in some parts of the country, but a lower-than-anticipated appraisal remains a common refi-killer. Consumers who owe more than their home is worth know this all too well. Pursuing a traditional refinance is all but impossible for underwater homeowners -- and that explains why the government's special refinance program for distressed borrowers is absolutely booming.