I would like to refinance my existing mortgage, but I have heard from friends that it is a waste of time because home values have dropped and the requirements are now very strict.

— N. Baker, Tucson

Home values have indeed fallen from where they were three to four years ago. Because interest rates on 15-year and 30-year fixed rate mortgages have also fallen — to historic lows not seen in 30 years — it does make sense to explore the possibility of refinancing your existing mortgage.

Due to the recent mortgage meltdown, today’s mortgage underwriting guidelines have also changed substantially from what they were a few years ago. Underwriting guidelines have reverted to stringencies seen 10-15 years ago when stated income loans (aka “liar loans”) were almost non-existent.

Generally speaking, a mortgage loan applicant today needs to provide proof of historical income and confirmation that the income will continue in the future. In this economic environment, a self-employed applicant probably faces the greatest challenge in receiving loan approval. Many businesses have experienced operating losses which also reflect negatively on a business owner’s personal income.

A verifiable, continuing source of income is one of the most important components an underwriter will consider when a borrower is obtaining a loan through the secondary market. According to Fannie Mae’s guidelines, “the lender must contact the employer verbally and confirm the borrower’s current employment status within 10 business days prior to the note date;” or, if self-employed, “the lender must verify the existence of the borrower’s business within 30 calendar days prior to the note date.”

It is well worth the effort to refinance in order to receive an interest rate that is in the 3 percent range for a 15-year fixed rate mortgage, and in the 4 percent range for a 30-year fixed rate mortgage. Just be prepared to provide a stack of papers to verify assets and income.

Karmin Laramie Lynam is a mortgage loan officer at Commerce Bank of Arizona, a locally owned community bank specializing in personal banking and small- to mid-size businesses in Arizona. She may be contacted at klaramie@commercebankaz.com or 797-6655.

Submit your banking and finance questions for consideration for future articles to Dave Perry at dperry@explorernews.com.

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