How to Refinance and Improve Instead of Move

All signs point to a sustained hot seller’s market for real estate through 2022. Many longtime owners could sell now, make a bundle and then move.

But a large number of baby boomers — those born between 1946 and 1964 — have been dissuaded from selling after a deeply disappointing home-shopping tour. Instead, they’re tapping their equity to renovate and stay.

Take the case of a pharmaceutical sales rep in her 60s who’d hoped to downsize from her large colonial to a more convenient townhouse.

“I crunched the numbers on moving; they just don’t work. Sure, I could sell for a very pretty price. But I had terrible sticker shock on the new townhouse. With the moving costs and all, I wouldn’t save a dime with the smaller place,” she says.

Rather than sell, the sales rep did a cash-out refinance on her house, pulling out enough equity to cover the cost of adding a first-floor master suite. Construction will start in February.

Analysts at Harvard University’s Joint Center for Housing Studies don’t know the sales rep in this true story. Yet they’re not surprised by her decision, given that equityrich boomers are now helping power a major increase in home renovation. All told, remodeling expenditures are expected to reach $400 billion by the third quarter of 2022.

“The rapid expansion of owners’ equity is likely to fuel demand for more and larger remodeling projects next year,” says Carlos Martin, a Harvard housing analyst.

Of course, not all boomers are excited at the idea of tapping their home equity with a cash-out refi. Yet others are willing to do so, with reassurance from the mortgage industry.

“Some seniors fear they’ll be rejected for a cash-out refi on the basis of age. But they won’t be rejected if they have good credit and can show steady income or exceptional financial assets,” says Keith Gumbinger, a vice president at HSH Associates (hsh.com), which tracks mortgage markets throughout the country.

In most ways, applying for a cash-out refi is no different than doing so for a plain vanilla refi or a mortgage to purchase a home. Here are a few pointers:

Refresh your grasp of mortgage basics before you apply.

Many older applicants need a refresher on mortgages. Because they’re rusty on the topic, they hesitate to ask questions, says Sid Davis, the author of several books on real estate.

But as Davis says, the main concepts of mortgage lending aren’t hard to grasp if you take a little time to do so. You can do a quick study of current mortgage essentials by visiting the website of the U.S. Department of Housing and Urban Development (hud.gov).

In addition, he suggests you pick up a book on mortgages — ideally one published recently.

“When it comes to mortgages, the turf is changing so quickly,” Davis says.

Search for a lender willing to meet you face-to-face.

Most lenders are entirely comfortable taking refi applications from homeowners they’ve never met. On a technical level, there’s no reason your lender can’t process your application by phone, text, email, fax or overnight delivery, says Marty Qualls, who makes mortgages for several large banks.

“But you’ll have a lot more credibility with your lender if you go into his office,” says Qualls, who’s been in the mortgage business since 1992.

Meeting face-to-face is an especially good idea for borrowers who anticipate special challenges to loan approval. Such applicants include the self-employed, those with credit blemishes, and those with relatively limited assets.

Respond quickly to your lender’s request for documents.

Dale Robyn Siegel, an attorney and mortgage broker, says that due to increased federal regulation, loan officers must work diligently to assemble the files they need to meet the exacting requirements of their underwriters (who have the final say on mortgage approval). Hence, they’re grateful to applicants who help them obtain documents without nagging.

“Good preparation is a big plus,” says Siegel, author of “The New Rules for Mortgages.”

Ideal loan applicants arrive at their initial appointment with all the primary documents they’ll need --including recent pay stubs, W-2s and bank statements.

Mortgage officers are also pleased when loan applicants review their credit reports in advance of applying. Under federal law, you’re entitled each year to one free credit report from the three large credit bureaus: Equifax, Experian and TransUnion. Just go to this website: annualcreditreport.com.

You may also want to access your credit scores. Such scores — which draw on data from the credit bureaus — provide lenders with a quantitative measure of a person’s credit risk. Most lenders use FICO scores, pioneered by the Fair Isaac Corp., though other rival scores are also now in use.

Usually, you need to pay a fee to obtain your credit scores. One approach is to buy these through the Fair Isaac website, myfico.com. You can also receive credit scores through the credit bureaus. FICO scores range from 300 to 850.

Stay in close contact with your lender until the deal is done.

Davis says lenders appreciate applicants who reply promptly to their requests for information and communicate often while their applications are under review.

“Whether you stay in touch by text, phone or email, connecting with your lender nearly every day is a great idea,” he says.