Many homeowners who need help with mortgage loans are finding it difficult to get relief. A Federal Reserve study found that about 2.3 million homeowners who could have been helped by refinancing in 2010 were unable to because of strict lending standards.

Underwater mortgages

Almost a quarter of U.S. homeowners are underwater on mortgages, making it impossible to get refinancing. Mortgage lenders are unwilling to lend to borrowers who don’t have equity in their homes. Not being able to refinance means that many people are not able to take advantage of low mortgage rates. Not having much equity also means some homeowners are unable to sell their homes to relocate.

If you are underwater on a mortgage but need help, contact your loan servicer to discuss your options. Also, the government is reviewing the Home Affordable Refinance Program (HARP) to see if it can be expanded to help more homeowners.

But while some borrowers aren’t having much success refinancing, other homeowners are managing to get mortgages. In some cases they may be put through a tough underwriting process that requires documentation for income, savings and other assets.

Credit scores matter

For homeowners who still have home equity, refinancing could be a possibility if they have good credit. Many mortgage lenders are looking for people to have the best credit scores before approving them for a loan. A credit score above 720 is usually required to get the best mortgage quotes.

Older borrowers and mortgages

Seniors living on fixed incomes may be especially challenged by making mortgage payments. One option for people 62 years and older who have some home equity is to get a reverse mortgage. Instead of refinancing and making payments on a mortgage each month, a reverse mortgage allows you to access some of that equity without having to pay it back right away. Money borrowed through a reverse mortgage is due when you move or die. Proceeds from a reverse mortgage can be received as a lump sum, through installments or as a line of credit.

The U.S. housing market continues to limp along. About a quarter of homeowners are underwater on their mortgage loans, foreclosure filings continue to drag down local housing markets and many borrowers are unable to refinance or sell their homes to improve their standard of living. Now, on top of everything else, the amount people can borrow with a mortgage backed by the government has dropped.

Mortgage borrowing capped

As of October 1. 2011, the maximum amount you can borrow with a government-backed loan is capped at $625,500. Previously, borrowers could get a mortgage for as much as $729,750 in some high-priced housing markets. The amount you can actually borrow depends upon where you live; the Federal Housing Administration has a tool that can help you find the conforming loan limit for your area.

The change in the conforming loan limits is likely to make it tougher for some borrowers in more expensive housing markets to get approved for mortgages. They may need to put down larger down payments or look for less expensive homes.

Getting a mortgage

Should you be worried about this change? Probably not, unless you live in a high-cost housing market. But even if you do, it is likely that housing values have fallen in your area, making homes more affordable than a few years back when the limit was increased. In this economy it makes sense to scale back plans for a home purchase. Getting into too big of a mortgage loan could put your financial future in jeopardy if you have to stretch your finances to make the monthly payments.

If you still want to finance a home over the conforming loan limit, you’ll probably need to apply for a jumbo mortgage. Getting a jumbo loan means you’ll pay a higher rate of interest and go under even tougher scrutiny to get approved.

Shop around for the best deal

Take time to investigate your options before applying for a mortgage. Whether you are buying or refinancing, it’s important to compare mortgage quotes to find right deal for your situation. Even if you are concerned about how the change in the FHA loan limit may affect your ability to obtain a loan, don’t assume that you won’t get approved by a mortgage lender. Shop around to get information from several lenders to help make the decision to get a loan.

If you’ve been paying on a mortgage for quite a few years but want to refinance, consider getting a 15-year loan so you don’t end up paying more than you should. Here’s why a 15-year mortgage could be a good deal right now.

Rock bottom mortgage rates

Mortgage rates are at or near historical lows. The average rate for a 15-year fixed mortgage was 3.26 percent as of September 17, 2011, according to HSH.com. At that interest rate, the monthly payment for a 15-year mortgage of $200,000 would be $1,406.31.

Refinancing to lower interest

You can cut the amount of interest paid out over time by refinancing into a 15-year mortgage rather than a 30-year loan. But depending upon how much you still owe, you’ll likely end up with a larger monthly payment than with a 30-year mortgage. If you have enough income to cover the extra payments you should be okay with the 15-year loan.

But if you are concerned about struggling to keep up with the higher payments, you could always refinance into a 30-year loan and just pay what you would have each month if you had gotten the 15-year mortgage. Either way, the goal should be to cut down on the amount of interest paid out over the life of the loan.

Popularity of 15-year mortgages

There’s definitely been a surge of homeowners taking advantage of the low rates to refinance into 15-year mortgages. “It’s all the trend right now. Most borrowers are asking about switching to a 15-year-loan. Everybody’s in a mood now to get those mortgages paid off. They want to see an end to those payments, and that’s what’s driving it,” Kristine Marr, a senior loan officer with RPM Mortgage in Walnut Creek, said in a Contra Costa Times article.

Staging your home can allow you to highlight the best features of your home so that you can get it sold quicker. Even if you live in a tough housing market, staging your house could give you an advantage over other homeowners in the area. Keep the following things in mind as you spruce up the place.

• At a minimum you must clean up your property and make obvious repairs. Potential home buyers will automatically be turned off by a house that is dirty, cluttered, and smelly. If the cleaning job is bigger than you can handle on your own, invest a few hundred bucks in hiring a cleaning service. Also take time to repair all those little things you’ve been meaning to get around to that visitors to your home  will notice.
• Staging your home doesn’t require purchasing a lot of new furniture and accessories. You probably have an adequate amount of furnishings in your home that can be rearranged to make the place more appealing. Yes, there may be times when small purchases are necessary, but don’t go overboard. If you have too much furniture and knick knacks cluttering up a room, put some of them in storage.
• Giving walls a fresh coat of paint can do wonders for jazzing up your home. Avoid really bold, loud colors that might detract from other features in the home. Stick with a more neutral palate.
• Put away personal photos, knick knacks, collectibles and other items.  You want potential buyers to visualize themselves moving into the home, not focus on your personal tastes.
• Arrange rooms in such a way that they appear larger and more open than they are. Using natural light from windows to give rooms a brighter appearance is helpful, so take down heavy draperies or old blinds that make rooms appear dark.

It’s important to look at your home with a critical eye. Go outside and examine the exterior to see what areas need changing. Do whatever you can to give home buyers a reason to make a bid on your property.

Having a steady paycheck will work in your favor. You’ll be asked to provide your most recent pay stub and income tax return. The income tax return becomes even more important when you are self-employed. While being self-employed won’t automatically rule out getting approved for a home refinance, lenders are going to scrutinize your finances to make sure you can keep up with monthly mortgage payments. You also may be asked for a profit and loss statement for your business.

Other documentation you might need to provide are the most recent statements for savings accounts and investments, proof of homeowners insurance, and information about your property taxes. If you refinance with your current mortgage lender, you may be able to roll over the money in the escrow account to be used with the new loan.

Anytime the mortgage lender asks for documentation, make sure that you provide it as quickly as possible. Delays in processing paperwork postpone a closing, or even keep you from completing a refinance.