Hakan Tale (R), listens to Joseph Sant, a lawyer at Staten Island Legal Services, as Sant explains the latest round of paper work from Chase Bank regarding a denied loan modification application for Tale's mortgage, in Staten Island, New York, December 9, 2011.

NEW YORK | Sat Oct 13, 2012 9:00am EDT

NEW YORK (Reuters) - The TV and radio ads make it all seem so easy. Walk into a lender's office, refinance your home loan at a rock-bottom rate, and walk out with a lower monthly payment.

Here's a little tip: It's not so easy.

If you know the pitfalls, you can at least prepare for them - and perhaps chart a wiser course. A few issues that could have your application earmarked for the ‘Rejected' pile:

1. Heightened credit score demands

If you're refinancing, that means you've successfully secured a home loan already. But since then, lenders have started to demand near-pristine credit scores. "Now to get access to the lowest rates, you need a FICO score above 740," says Keith Gumbinger, VP of mortgage information site HSH.com.

Not quite the perfect score of 850, but still quite challenging to achieve. Credit scorer FICO does not break out the average number for refi applicants, but the national average is 690 -- well below what will get you prime lending rates.

2. Low appraisal

While interest rates have gone down, so have U.S. home values. The average home value dropped a third from the start of 2007 to the start of 2012, according to housing analytics firm Fiserv. For refinancing, that's a problem.

Chicago's Jesse Raub and his wife have owned a home for about three years, and recently started the refi process. But then the appraisal came in low.

"Beware that the appraised value of your home may not be what you think it should be," says Raub, 27, who's a trainer and educator for Intelligentsia Coffee. "Our new mortgage amount was close to the total value of the home - which required us to get mortgage insurance as well."

3. A home equity line of credit

You may have forgotten that you once took out a home equity line of credit. You may have not even touched a penny of it. But it could still derail a refi, because it means another lender has a claim on the value of the home.

"If you're refinancing your first mortgage, the lender of the home-equity line has to agree to that," says Mike Fratantoni, vice president of research for the Washington, D.C.-based Mortgage Bankers Association.

Essentially, that lender needs to sign off on being second in line, and agree that the primary mortgage will always be paid off first (in the event of a foreclosure, for instance). "There may be fees associated with that, and so a home-equity line of credit is one more thing that could make a refi more difficult."

4. Condo or co-op troubles

If lenders are going to fork over hundreds of thousands of dollars, they don't want any issues to make them nervous. And when the property is subject to decisions of an unpredictable board of directors, that can make them nervous.

"Any number of issues might trip you up," says Gumbinger. "If the building finances aren't in good shape, or if the insurance isn't paid up, or if there are any units in foreclosure, or if there are any lawsuits against the condo association, or if the building is comprised largely of renters. All kinds of fun stuff can arise."

5. Timeliness requirements

Banks want to see the most up-to-date financial information possible before they sign off on a mortgage. But they also have a tendency to ask for document after document after document regarding your financial situation. If the refi process has ballooned to 60 or even 90 days, but they require documents from the last 30 days, that could put you on a carousel of paperwork straight from the ninth circle of hell.

So get out your yoga mat, breathe deeply, and have a mantra ready. You're going to need lots of patience. "Expect the worst," advises Erin Lantz, director of the mortgage marketplace for real estate site Zillow.com. "If you come to terms with that at the beginning, it will remove the stress later on."

(Follow us @ReutersMoney or here Editing by Beth Pinsker Gladstone)

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A ''Price Reduced'' sign is displayed on a home for sale in northern Virginia suburb of Vienna, outside Washington, October 27, 2010.

NEW YORK | Sat Oct 13, 2012 8:57am EDT

NEW YORK (Reuters) - For Scott Laperruque, every day is Groundhog Day.

That's because the commercial photographer from Short Hills, New Jersey is refinancing his house for a rate of 4 percent. Trying to, anyway. And every time he wakes up, just like Bill Murray in that classic film, he discovers he's living the same day all over again.

"The bank will ask for one document, and a week will go by," says Laperruque, 55, who now pays 5.75 percent and would save almost $400 a month if his refinancing would close. But the bank keeps asking for more, and more, and then because they have to have everything within a 30-day period, they have to re-ask for things like payroll stubs.

"It's a constant round robin of new documents and expiring documents, all at the same time, and it's been going on for months. I'm about to blow my stack," he says. "The only conclusion I can come to is that everyone at the bank is making money by kicking around my application. The longer they keep it up, the longer they keep their jobs. I just don't know."

Sound familiar? If you're one of those who were involved in the $858 billion in refis for 2011, or the more than $1 trillion estimated for this year, it probably does. The constant news that mortgage rates are hovering near record lows - the current average for a 30-year fixed loan is 3.44 percent, according to Bankrate.com -- has brought out legions of homeowners, who have been trying to secure new loans and reduce their monthly nut.

But if you assume that refis are a relative breeze, you're wrong. They're treated exactly the same as an entirely new loan, and contain all the challenges that come with that. First of all, lenders are swamped with applications, meaning the pipeline has gotten pretty clogged. Second, banks are still cautious in the wake of the subprime mortgage bust that saw so many homeowners unable to make payments.

"It's definitely become a much more rigorous process," says Michael Fratantoni, vice president of research for the Mortgage Bankers Association. "There are multiple checks of every data point along the way, all of which needs to be fully documented and verified. Everyone should be aware that lenders have become very meticulous."

After you deluge banks with the necessary documents, they still come back with an endless series of questions. Missed a bill payment because it was stashed in a drawer? Be prepared to explain yourself. Your parents sent you a check for your birthday? Have that fact notarized, please.

There's also the nagging question of whether your lender really wants to refi at all. If your current bank has you locked in at 6 percent, say, why would they ever want to give you 3.5 percent? It would seem that the more they drag the process out, the more interest they collect at the old, higher rate.

"It's a good question, and a lot of homeowners wonder about that," says Polyana da Costa, senior mortgage analyst for financial information site Bankrate.com. "But in fact they do want to refinance your loan, because they make money on it all sorts of ways - like collecting origination fees, underwriting fees, and then by selling that mortgage to Fannie Mae or Freddie Mac. If they seem like they're dragging their feet, it's probably just because they're totally overwhelmed right now."

TROUBLE AT THE CONDO

Whatever the reasoning, it's left Scott Laperruque twiddling his thumbs in refi purgatory since May. And that's for a single-family home (with a separate living area for his mother-in-law), which used to be relatively straightforward. When you're part of a building with multiple owners, like a co-op or condo, the number of problematic issues can metastasize.

Just ask Brooklyn's Val Vinokur. He's a 40-year-old associate professor of literary studies at The New School, looking to convert his 30-year fixed mortgage of 5.75 percent to a 15-year-fixed at a rock-bottom 3 percent. He and his wife have solid jobs, good credit, and plenty of equity in the apartment.

Simple, right? Not so much. So far Vinokur, who was born in Moscow in 1972 before immigrating to the United States seven years later, likens the refinancing process to the novels of surrealist Franz Kafka ("The Trial") or Arthur Koestler, author of anti-totalitarian works like "Darkness At Noon."

"It all hinges on getting the financials from the co-op, which seems to be taking forever," says Vinokur. "The mortgage broker doesn't like the management company, and vice versa. I haven't pulled my hair out yet, but I anticipate reaching that point. But then I'm Soviet, so I have a pretty high tolerance for bureaucratic nonsense."

THE BIG TEASE

Even when the bank seems locked and loaded to give you a new loan, the process can still get derailed and leave you emotionally spent. That's what happened to Amrita Barth, 38, a Brooklyn lawyer and mom of two. She and her husband bought a home in the Greenwood Heights neighborhood almost three years ago, got a mortgage at 5.5 percent, and subsequently put in a host of new upgrades.

When they tried to refinance at 4.5 percent in the fall of 2011, they got waylaid at the appraiser stage a couple of months into the process. "It was extremely frustrating," says Barth. "He spent five minutes in a four-story house, and appraised it for less than we bought it at, despite $200,000 in renovations. So the bank said we'd have to put in even more cash to get the same rate, and we had to drop the idea."

Adding insult to injury, Barth had already spent a lot prepping for the refi, including paying the appraiser almost $1,000 for his rock-bottom valuation. Once it fell through, that was money she was not getting back.

Lucky for her, interest rates kept falling. So when the couple decided to take another stab at a refi this summer, they got 4 percent - and a higher appraisal. They just closed on the deal, but still feel like they've been through the wringer.

"It's been so annoying," she says. "And it's very hard not to take it all personally."

Money is an emotional subject, so it's no wonder refi applicants are getting so stressed out. "It's like a big tease," says Maggie Baker, a Philadelphia psychologist and author of "Crazy About Money." "You put up with the whole process and have such high hopes, and then in the final moments you might be told you're just not good enough. So it can be very frustrating, and there's a big potential for disappointment."

As for Scott Laperruque, he keeps waiting for the day when the refi is approved, the new interest rate kicks in, and his monthly payment drops. But that day still has not arrived.

"It's a never-ending process," he sighs. "I want it to end - but it just won't."

(Follow us @ReutersMoney or here Editing by Beth Pinsker Gladstone; Editing by David Gregorio)

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