Refinancing: What’s it going to take?

(Originally published as an article within ECCU’s former e-publication, Ministry Banking Today.)

If you’re thinking about refinancing, you likely fall into one of three camps:

  1. Your current ministry loan is coming to the end of its five-year term and you need to renew it with your current lender. If this is the case, your position is strongest if you can demonstrate that income has remained stable—without any significant declining trends—and that your budget is in place for the year.

  2. You have a loan with one financial institution, but would like to refinance it with another. In this situation, you need to look really good on paper. Ideally, your ministry should not have had any significant declines in income in the past couple of years. If you did, your books should show that you have controlled spending, remained in the black, and increased cash reserves.

  3. Your ministry is struggling to make payments and you’re hoping for a loan modification. This is an entirely different ball game. For now, we will focus on situations one and two and address this situation next month.

Whether you are looking to renew with your current lender or refinance with a new one, there is one thing you need to be keenly aware of: Requirements have changed. Economic events of the past 18 months have had a significant effect on the refinance market.

Just as it’s more difficult these days to get a home loan, financial institutions are more cautious about refinancing as well. This is a simple consequence of supply and demand. There are fewer dollars available to loan, thus they are given to borrowers with the least amount of risk.

So, how can you prepare now to ensure that you are low-risk when you want to refinance? Follow these tips.

  • Make sure you have a budget you’re sticking to. Operate within your means and ensure you have adequate cash reserves. If you have experienced loss of revenue in recent years, your lender will want to see that you’ve made a change in your spending and are now operating on budget.

  • Consider having an outside CPA prepare your financial statements. With lenders more cautious than ever, it is a good idea to spend the money for a CPA rather than preparing financials internally. Your financial statements and budget should clearly demonstrate how your ministry is performing financially.

  • Pay attention to your loan-to-value (LTV) ratio. Strong LTV is another criterion your financial institution will look for when evaluating your credit-worthiness. If you’re located in an area of declining property values and the value of yours has dipped, you may need to accelerate loan payments to stay “right side up” on your property. For most credit unions today, strong LTV means that your loan does not exceed 65 percent of your property’s value.

  • Be prepared to pay more to refinance than you did a couple years ago. Because of tightening standards, more is required to approve your loan—meaning more fees along the way. For example, most financial institutions require a new appraisal and title companies may require a new title.

  • Ensure that you have cash on hand to pay for the refinance. Lenders may not be willing to wrap the fees into your new loan.

  • Don’t wait until the last minute. Yes, even a couple months before your loan maturity date is considered last minute. Contact your financial institution at least six months before the maturity date, if they haven’t contacted you already. One reason for this is that the approval process is taking longer in the current environment, sometimes up to six months.

The bottom line? If you are considering refinancing—even a year or two down the road—focus on staying on budget, building solid cash reserves, and maintaining strong LTV. And remember to contact your financial institution to discuss your specific situation.


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