It has long been an element of the American dream for a homeowner to burn the mortgage note and celebrate, as soon as he or she is able to pay it off. Conventional wisdom held that this would help pave the way for a debt-free retirement.

But in today’s shaky economy, many financial advisers are suggesting that homeowners wait.

“I think paying off the mortgage would probably be a poor decision financially right now,” said Gibran Nicholas, the chairman and chief executive of the Certified Mortgage Planning Specialist Institute, which trains and certifies financial planners who provide mortgage and real estate equity advice.

The decision, he says, depends upon cash flow and returns.

Debra Shultz, a managing director of the Manhattan Mortgage Company, says that homeowners approaching retirement must ensure that they have enough cash flow to cover daily expenses. Once the mortgage is paid off, she noted, “you can’t take it back unless you refinance and cash out again.”

And refinancing as a retiree could be difficult. “Their qualified income might drop, which might inhibit them from refinancing and qualifying,” she said.

In some cases, homeowners might receive a better return by investing the money they would have used to retire the mortgage. “Why pay off a mortgage and save maybe 3 percent after tax when you could be putting that money into a muni bond earning 4.5 percent after tax right now?” Mr. Nicholas said.

Returns could potentially be even greater if the retiree bought a vacation or retirement home on the cheap. “I think there’s going to be fire sales and they’ll have opportunities to grab assets at fire-sale values,” said DaRayl Davis, a money manager and the author of “Economic Secrets of the New Retirement Environment” (Xlibris, 2009).

Financial advisers also contend that it makes little sense to pay off the mortgage on an asset whose value is still depreciating. Indeed, home prices in the country’s top 20 markets have fallen more than 30 percent, on average, from their peak in June 2006, with those in Las Vegas, for instance, tumbling 60 percent, according to Alex Barron, the founder and president of the Housing Research Center.

Prices in New York City are off 22 percent from their peak, he said, adding that he expected home prices to fall another 5 percent before bottoming out in the next one to two years.

Mr. Davis is even more bearish, predicting that prices could slide another 30 percent. “That bubble has burst,” he said, “and it’s not done deflating yet.”

Mr. Nicholas recommends that any homeowner with a mortgage rate above 7 percent try to refinance to a lower rate if the refinancing costs are not too high.

Then there are the tax implications of losing the mortgage deduction. These are only relevant, Ms. Shultz noted, to owners whose principal is less than two-thirds paid off. Once the two-thirds threshold has been reached, the interest deduction, if any, is small and doesn’t justify keeping the mortgage.

Of course, the good feeling of owning a home debt-free should not be minimized. “Trading off a known 4 percent interest rate for an unknown market return may leave some retirees jittery,” said Drew Denning, the vice president for retiree services of the Principal Financial Group.

For those who do opt to pay off a mortgage early — perhaps they want to eliminate debts to pay for their children’s college — the experts suggest that they have at least 12 months of living expenses in cash available outside their retirement accounts after the home is paid off. That is double the amount normally recommended in good times.

Mr. Denning recommends as much as two years’ worth of living costs. “The ability to find another job that pays a comparable amount of money is very challenging in today’s environment,” he said. “And going to your bank to take out a loan when you’re unemployed would not be one of the more friendly visits you’ll have.”

Despite recession, demographic often confuses buying power with real wealth

Unlike the Greatest Generation (those who grew up during the Great Depression), baby boomers have never been labeled as risk-averse. They take chances, look for adventure, and are generally positive about the aspects of aging.

They overborrowed for homes, cars, tuitions and vacations, leading Eric Snider, who holds a doctorate in social psychology and once served as Shea Homes’ marketing director for Trilogy, the company’s upscale active adult communities, to say “baby boomers never met a loan they didn’t like.”

Didn’t the mortgage meltdown and subsequent fragile economy change all that? Aren’t all age groups (or “cohorts,” as the marketing folks prefer to call them) playing it closer to the vest?

Two new studies revealed a bit of the tightfistedness while leaving the door open to the adventuresome. The most recent Associated Press-LifeGoesStrong.com poll found the 77 million-strong generation born between 1946-64 is increasingly worried about retirement and their finances given the economic crisis of the past three years.

In fact, just 9 percent say they are strongly convinced they’ll be able to live comfortably in retirement.

However, a new survey from Coldwell Banker Real Estate showed that boomers held a strong desire for investment properties and second homes despite not being able to sell their primary residence.

“The baby boomer generation has driven the U.S. economy for years, and like many Americans, they may be anxious about their next real estate decision,” said Jim Gillespie, chief executive of Coldwell Banker Real Estate.

“I know baby boomers are a very diverse group and cannot be described in generalities, but our survey clearly indicates that those boomers who are financially secure are actively seeking to buy their retirement home, or a second home, and they are taking advantage of the opportunities and value available in today’s market.”

The important term is “financially secure.” Boomers have been known to confuse borrowing power with real wealth. It has gotten them into trouble in the past via option ARM (adjustable-rate) loans boomers took out to buy a larger home (or second home, car, or gold trinket) than they could afford.

Thankfully, those loans are no longer available because very few borrowers ever converted the “option” into a fully amortizing loan that paid off the house in a specific time frame. Boomers were, by far, the biggest audience for option ARMs.

“Baby boomers have been hit hard by the housing downturn,” said Stan Humphries, chief economist for Seattle-based Zillow. “Many in this generation had once thought of their home as a key element of their retirement strategy. However, as the value of their primary residence declined, so did their retirement resources.

“On the brighter side, those boomers who have the means to purchase a second home today are in a much better position than home shoppers in 2006. Today, shoppers have access to record-low mortgage rates and can purchase a home for prices not seen since the early 2000s.”

According to the AP poll, about 6 in 10 baby boomers say their workplace retirement plans, personal investments or real estate lost value during the economic downturn.

Of this group, 53 percent say they’ll have to delay retirement because their nest eggs have dwindled. A total of 73 percent of those polled said they would keep working, up from 67 percent in the AP poll in March, a greater percentage than any other generation.

The losses include home prices that have dropped by a third nationwide over the past four years and have left boomers anxious about moving and selling their homes.

John Tuccillo, former chief economist for the National Association of Realtors and one of the nation’s astute housing analysts, said some boomers still have the itch to experience “what could be” but are stymied by the slow-moving housing ladder. They simply can’t sell to take the next “rung of the ladder.”

“Baby boomers face a divided market,” Tuccillo said. “Their primary residences are in places where demographics and market changes make them hard to sell. Yet, because of the deep discounts now available in Sun Belt states like Nevada, Arizona and Florida, second homes — either as investments or potential retirement locations — are compelling buys.”

What has not changed is that boomers remain unpredictable.

“Baby boomers are famous for believing one thing and then behaving totally different from what they think they do,” said Snider. “What they do want is personal experiences. Boomers are all about personal experiences.”

And those “wants” got many boomers in trouble in the past.

Interest rates fell to new lows in September. Low interest rates increase affordability and should make it easier for buyers to qualify. Yet stories of buyers waiting months to gain loan approval and home purchase transactions not closing on time due to lender’s strict underwriting are all too common.

Some buyers are turned down for illogical reasons. For instance, if you have investments — even if they’re performing well — an underwriter might deny the mortgage because your portfolio doesn’t fall into the underwriter’s risk assessment model.

One couple was turned down because the husband had worked at his current job for less than a year — even though he was making more money at the new job than he was before.

These buyers were well-qualified. The wife had worked several years for one employer and was able to qualify for the loan on her own. So, the transaction closed, although two months late.

Generally, it’s more difficult to qualify now than it was a year ago. Most conventional lenders require a 20-25 percent down payment. For the lowest interest rates, your credit scores need to be in the 700 range. You need to have verifiable income and cash reserves in addition to your down payment and closing costs.

You could run into underwriting problems if you’re self-employed, as W-2 income is much easier to verify. Other hurdles are lapses in employment and owning a lot of property. Some lenders won’t lend to buyers who have more than three or four residential properties.

If you’re buying a new home before selling your current home, you’ll need to have 30 percent equity in your current home. This needs to be verified by the lender’s appraiser. Also, the lender will want to see a copy of the cashed check from the tenant for the first month’s rent to verify rental income if needed to qualify.

HOUSE HUNTING TIP: As soon as you’re serious about buying a home, find the best mortgage broker or loan agent you can to assist you. Don’t make your selection based on interest rates alone. A good track record counts for a lot.

Closing the deal should be your primary goal. If you have to pay 0.25 percent more to assure your transaction closes on time and that you’re not turned down at the last minute, it’s worth it.

Be candid with your loan professional about anything in your financial picture that might impact loan qualification. A good loan agent or broker will be able to assess your financial situation and anticipate what you’ll need to do to satisfy the underwriter.

Be aware that appraisal issues can impact your loan approval. For example, if a previous owner added square footage without a building permit, the additional square footage probably won’t be included as livable square feet.

If the appraisal comes in for less than the purchase price, the lender might not lend you enough to close the deal. Include an appraisal contingency in your contract.

As of Oct. 1, the conforming jumbo mortgage limit for expensive housing markets like New York City and San Francisco dropped from $729,750 to $625,500. In some cases, conforming jumbo lenders have moved into the market to pick up some slack. You can expect to pay about 0.25 percent more for a 30-year fixed-rate conventional jumbo loan, in some cases. However, today’s lower interest rates will help boost affordability.

There are more jumbo financing options available now. Adjustable-rate mortgages that are fixed for 10 years and then revert to an adjustable have a starting rate about 0.25 percent less than a 30-year fixed jumbo. A five-year fixed starts about 0.5 percent to 0.75 percent lower, but is riskier.

THE CLOSING: Because of the risk factor, the lender may want you to have a large cash reserve. Your retirement account counts toward this.

“My application to refinance my $200,000 loan was recently turned down … do I have any recourse?”

If by recourse you mean a third party of some standing who will direct the lender to make the loan, or attempt to persuade them to do it, the answer is “no.”

No third party is going to reunderwrite the loan to see if the lender made a mistake. Such mistakes are very rare because lenders make money only on loans they close; they lose money on loans they reject.

Reapplying with another lender

It is possible but unlikely that another lender would approve your loan. Virtually all $200,000 loans are either sold to Fannie Mae or Freddie Mac, and therefore subject to the underwriting rules of those agencies; or insured by FHA and subject to its underwriting rules.

Some lenders place “overlays” on top of these rules, which are more restrictive than those of the agencies. It is possible that your loan met agency requirements but was tripped up by a more restrictive overlay, which would mean that another lender might approve it.

Before applying elsewhere, however, I would discuss your rejection with the loan officer who gave you the bad news to see where your application fell short, and whether it might have met agency requirements.

On the assumption that you did not meet agency requirements, your only option is to change the transaction in a way that will bring it into compliance. The changes required depend on the reason or reasons you were rejected.

Credit score too low

In general, it takes considerable time to raise a credit score significantly, but there are some exceptions. One is where the score is depressed by a reporting mistake, which is not uncommon. As soon as the mistake is corrected, your score will jump. (See “How Do You Correct Mistakes In Your Credit Report?”)

Another possible way to juice your credit score is to pay down high balances on your credit cards. A high ratio of balance to maximum balance, called the “utilization ratio,” is considered a sign of weakness and potential trouble, reducing your score. Paying down balances to less than 50 percent of the maximums should raise your score.

Finally, you can detach yourself from the “wrong vendors.” Because finance companies lend to relatively poor risks, the credit score of any borrower owing money to a finance company is lower than it would be if the creditor were a bank.

By the same logic, borrowers who have credit cards of department stores are penalized, relative to what their score would be if they had cards issued by banks. If you can’t pay them off, place department-store cards at the top of your balance-reduction list.

Equity too low

The borrower’s equity in his property is its appraised value less the loan balance. Equity can be increased by obtaining a higher appraisal or by paying down the balance.

You don’t get a higher appraisal because you need one to refinance your mortgage; you get one because the appraiser made one or more mistakes that reduced value erroneously. You may well know the local market better than the appraiser, especially if he is located a good distance away; you will find his address on the appraisal report.

To make use of your information, however, you must start the process again with another lender. Under current rules, if your existing lender orders a new appraisal, he is obliged to use the lower of the two values.

You can also increase your equity in the house by paying down your loan balance, a process called “cash-in refinance.” If you have money in the bank earning 1 to 2 percent, a cash-in refinance that allowed a rate-reduction refinance that would not otherwise be possible would earn a very high return. Of course, you must have the cash to invest.

Debt-to-income ratio too high

In general, underwriting guidelines set maximum ratios of total debt payments to borrower income of 41-43 percent. Debt payments include the mortgage payment, property taxes, homeowners insurance, mortgage insurance (if any), and all other debt payments that extend beyond the next six months and are not deferred for a year or longer.

This includes home equity credit lines (HELOCs) and other revolving credits, credit card debt that you don’t pay off at month-end, auto loans, student loans and alimony and child support payments.

If your ratio is too high to qualify, there may be ways to reduce your debt payments. The cash-in refinance referred to above not only increases your equity in the house but it also reduces your monthly mortgage payment. Borrowers who don’t have excess cash but do have a 401(k) retirement account can borrow against it and use the proceeds to pay down other debt. Loans from a 401(k) are not included in the debt ratio.

The bottom line is that a loan rejection is not necessarily final, but it is up to the borrower to do what is necessary to convert the transaction from one that does not meet underwriting requirements into one that does.

Sellers should think twice before accepting additional bids.

Buyers who lose out in a multiple-offer competition or who make an offer a little too late may be offered the opportunity to be in a backup position. A backup offer is one that’s accepted subject to the collapse of an already accepted offer.

The seller can accept multiple backup offers, in which case they are ranked: backup offer No. 1, backup offer No. 2, and so forth. It’s rare in the current market for there to be more than one backup offer.

If you’re offered backup position, should you accept it? Buyers are often reluctant to accept a backup offer because they feel it will strengthen the resolve of the buyers in primary position to move forward with the deal if they hit a rough patch, such as a previously unknown inspection issue. And, in fact, this can happen.

Recently, buyers went into contract to buy a home in Oakland, Calif. The sellers provided many reports and disclosures on the condition of the property. However, someone inspecting for the buyers had a different opinion about the condition of the roof, gutters and downspouts, and said it would cost an extra $13,000 to fix.

Two days after the first contract was accepted, another buyer made an offer that was accepted in backup position. The backup offer was for a higher price than the primary offer. Rather than lose the house to the backup buyers, the first buyers removed their inspection contingency despite the new information they received about the condition of the roof.

Some buyers fear that if they accept backup position they will halt their search effort until they know for sure that they can’t have the home they want. This is a factor you can control. If you accept backup position, don’t slow down your quest to find a home to buy.

HOUSE HUNTING TIP: Make sure there is a provision in the backup position clause in the contract that says the buyers can withdraw at any time up until they are notified that the primary offer has collapsed and their offer has been elevated to the primary position.

It’s usually worthwhile to accept a backup position because there is a high fallout rate in the current market. Just don’t sit around waiting for the first deal to fall apart.

From the sellers’ perspective, it’s usually a good idea to counter an offer for backup position if there is more than one offer. Keep in mind that most buyers would rather be in primary position. Some won’t accept backup for the reasons mentioned above, or they may have another house in mind if they don’t get yours.

To entice a buyer to accept backup position, you may have to accept an offer with a lower price than the primary offer. Don’t expect a buyer to accept a counteroffer from you for backup position that also includes a price increase. Make sure you tidy up the offer as if it were a primary offer. There won’t be a chance to change the terms if the primary deal falls apart.

Don’t accept any offer just to have a backup offer. If you have a backup offer and the first contract fails, your home goes to the backup buyer without going back on the market. This can be a benefit to both buyers and sellers. The backup buyer doesn’t have to face multiple offers again, and the sellers don’t have to go through the hassle of finding another buyer.

Sellers who don’t like a potential backup offer because of a very low price might be better off not countering the offer for backup position.

THE CLOSING: Sellers should feel comfortable with a prospective backup offer; they may have to live with it.

Half of refinance applications are abandoned or rejected, as are 30 percent of purchase mortgage applications, according to the Mortgage Bankers Association. All told, the Federal Financial Institutions Examination Council (FFIEC) says that well over 2 million mortgage applications were rejected last year.

Want to avoid falling into that number? It’s tough — especially in light of the fact that mortgage lenders have become increasingly restrictive in terms of their lending guidelines since the housing market crash.

Here, as a cautionary tale and primer on what to expect, are the top six reasons mortgage lenders reject applications.

1. Income issues. Most failed applications falling into this category have income too low for the mortgage amount they are seeking; often, a spouse’s credit issues can create this problem, too, as the income the spouse plans to actually chip in toward the mortgage cannot be considered by a lender.

But increasingly, the recent vagaries of the job market are also causing this issue, as people who have changed their line of work or have changed from salaried employee to freelancer over the last couple of years can also have their home loan applications rejected based on income.

2. Muddled money matters. If the mortgage for which you’re applying plus your monthly payments on credit card, car and student loan debts will comprise more than 45 percent of your total income, you could have problems qualifying for a home loan. You might also run into problems if you rely too heavily on bonuses, overtime, cash wages or rental income — all of these can be difficult or impossible to get a mortgage bank to consider, and if they do, they might not take all of it into account.

3. Credit issues. Today, the mortgage-qualifying FICO score cutoff falls somewhere between 620 and 660, depending on which lender and which loan type you seek. More than one-third of Americans, by some numbers, have credit scores too low to qualify for a home loan. Even if your credit score is high enough to qualify, if you have any late mortgage payments, a short sale, a foreclosure or a bankruptcy in the last two years, loan qualifying could be difficult to impossible.

4. Property didn’t appraise. Since the whole industry had its hand (among other things) smacked for allowing home values to skyrocket in a very short time, appraisal guidelines have tightened up — some would say, even more than overall mortgage guidelines. So, it is increasingly common to have the property appraise for a price lower than the sale price negotiated between the buyer and seller.

This is especially common in the refinance realm, as well over a quarter of U.S. homes are now upside-down, meaning the mortgage balance owed is greater than the value of the home. (If you’re trying to refinance an upside-down mortgage, consider the FHA Short Refi program — contact your lender or get referrals to any mortgage broker who makes FHA details to apply.)

5. Condition problems. With all the distressed properties on the market, and with most nondistressed sellers barely breaking even, more home-sale transactions than ever are falling apart due to condition problems with the property. Many lenders will not extend financing on homes where the appraiser points out problems like cracked or broken windows, missing kitchen appliances, electrical problems, or wood rot.

And in the world of condos and other units that belong to a homeowners association, if more than 25 percent of units are rented (rather than owner-occupied) or more than 15 percent are delinquent on their HOA dues, new applications for refinance or purchase mortgages on units in the development are likely to be rejected.

6. Technical difficulties with application. The days when lenders just took your word for it are long, long gone. Applications with incomplete or unverifiable information are doomed.

If any of these mortgage loan application glitches arise in your homebuying or refinancing process, it’s critical that you connect with your mortgage professional, be it your banker or mortgage broker, to determine what course of action to take.

In some cases, it might be as simple as buying a stove you find at Craigslist and installing it before escrow closes; but with income issues your mortgage pro will need to help you determine whether it makes sense to pay some bills down, get a co-signer, or even wait six months so your income documentation will qualify.