Q: I want to refinance to a 20-year fixed mortgage. I owe more on my home than it is worth by about 20 percent. I want to compare quotes but no one will tell me anything unless I fill out an application. How is this going to affect my credit?
A: If you are "underwater"--that is, your mortgage balance is higher than the current value of your home--your refinance opportunities become severely limited. If your loan is owned by Fannie Mae or Freddie Mac, you should be eligible for the Home Affordable Refinance Program (HARP), which will allow you access to some fantastic mortgage rates in today's market despite how underwater you are. Your participation in HARP will depend upon your servicer's participation in the program.
The first step is to find out if your loan is eligible. You should check with your loan's servicer--their number should be on your monthly statement--or you can use a loan-look-up tool and check with the Fannie Mae and Freddie Mac databases to see. If your loan is eligible, you'll need to work with your servicer to get you through the refinance process. However, since HARP is voluntary, not all lenders participate. If your loan is eligible, but your servicer does not participate, you are then free to talk to other lenders about your refinance.
Until you know if you are in or out of the program, there's no reason to place applications anywhere. If you do find you will be shopping the open market, please know that the credit bureaus usually treat multiple applications for a mortgage submitted to different lenders as a single entry in your credit file, so there should be no undue effect on your credit rating.
A 25-year expert observer of the mortgage and consumer debt markets, Keith Gumbinger has been cited in thousands of articles covering a wide range of consumer finance and economic topics in outlets ranging from the Wall Street Journal to the Bottom Line newsletters. He has been a featured guest on national broadcasts for CNN, CNBC, ABC, CBS and NBC television networks and has been heard on NPR and other national and local radio programs. Keith is the primary researcher and writer for HSH.com's MarketTrends newsletter and has authored or co-authored a number of consumer guides on mortgages, home equity, refinancing and more.