Homeowners tend to seek out a refinance of their mortgage loan when they have built up some equity in their home and wish to get better loan terms than their original mortgage. People also seek to refinance when they initially took out an adjustable rate loan and would prefer a fixed rate loan for better payment manageability.

Because of recent changes in the mortgage industry, it is now harder to get any kind of financing let alone a refinance deal on your current home. Lenders are looking for plenty of equity, creditworthiness, and the ability to repay the loan from any borrower. Since many people have fallen into debt traps or have come close to losing their home through foreclosure, lenders are very particular about who they will lend to and the criteria to approve applications for refinance.

Home Value Stumbling Block

If you are looking to refinance your home but are concerned about the eligibility for the refinance due to your home being a starter home on the lower end of the market, you are right in your thinking.

Typically, the value of your home does not really affect your ability to find a refinancing deal but in cases where homes are on the lower side of the market these days, you may have trouble getting a new loan. If a homeowner can not prove to a lender that their home is worth more than what they estimate, lenders will likely decline the loan.

Why Is This Happening?

Many of the homeowners who purchased a lower cost home are first-time buyers who put small down payments on their first mortgage and have not yet had enough time to grow equity in their homes. When the housing market crashed not so long ago, any equity they had built up was lost.

Additionally, those first time home buyers tended to also be borrowers who took out the riskiest loans during the housing boom when lenders were freer with their lending criteria. Because credit was so easy to come by until the collapse, homes priced at the lower end of the scale tended to depreciate in value more so then their medium range counterparts. Those in medium to upper priced homes are more likely to find a refinancing deal than those in lower priced homes. Those who have credit issues and lower credit scores will also continue to find it difficult for lenders to accept their applications.

Another example of when refinancing can be hard to come by is for those who purchased unique homes that have no comparable homes in the immediate area. Those who purchased homes in areas with many other homes of the same value are finding it much easier to refinance because the accurate value of their homes can be more easily determined.

Get Prepared

To have success at a refinance, make sure you have the best credit score you can and have decent equity in your home. Speak with several potential lenders about the qualification process for a refinance before you select a lender. The more prepared you are for the refinance application process, the more likely you will get approval if you are ready to meet the eligibility requirements.