      |
Refinancing Your Home - Top Ten Mistakes
- Refinancing with your current lender without shopping around.
Your current lender may not have the best rates and programs. There is a general
misconception that it is easier to work with your current mortgage company. In most cases,
your current mortgage company will require the same documentation as other companies. This
is because most loans are sold on the secondary market and have to be approved
independently. So even if you have been very good at making payments to your existing
lender, they will still have to do their verifications all over again.
- Not doing a break-even analysis.
Find out what the total cost of the refinance is, then figure out how much you will save
every month. Divide the total cost by the monthly savings to get the number of months you
will have to stay in the property to break-even on your refinancing costs.
Example: if your refinance costs $2000 and you save $50/month your break-even is
2000/50=40 months. You should refinance if you plan to stay in the house for at least 40
months.
Note: The break-even analysis only works if you are refinancing to save money. If
you are refinancing to switch from an adjustable to a fixed or from a 30-year loan to a
15-year loan, it is much more difficult to perform a break-even analysis.
- Not getting a written good-faith estimate of closing costs.
Your mortgage company is required to provide you with a written good-faith estimate of
closing costs within 3 working days of receiving the application.
- Paying for an appraisal when you think that the house may
appraise too low.
Have the appraisal company do a desk-review appraisal (typically at no charge) to provide
you with a range of possible values. Your mortgage company can ask their appraiser to do
this for you. Do not waste your money on a full appraisal if you are doubtful about the
value of your house.
- Using the county tax assessor's value as the market value of
your house.
Mortgage companies do not use the county tax assessor's value to determine whether they
will make the loan. Instead, they use a market-value appraisal which may be very different
from the assessed value.
- Signing your loan documents without reviewing them.
Do not sign documents in a hurry. Whenever possible, try to get documents that you will be
signing ahead of time so you can review them. It is advisable to ask for a copy of all
loan papers you will be signing a few days ahead of the close of escrow. This way, you can
review them and get your questions answered. Do not expect to read all the documents
during the closing. There is rarely ever enough time to do that.
- Not providing documents to your mortgage company in a timely
manner.
When your mortgage company asks you for additional paperwork, jump on it! Do not complain.
They are trying to get you approved, not trying to hassle you unnecessarily! Jump through
the hoops as quickly as possible. Borrowers who do not respond to requests for
documentation quickly enough can end up paying higher rates if their rate lock expires.
- Not getting a rate lock in writing.
When a mortgage company tells you they have locked your rate, get a written statement
which details the interest rate, the length of the rate lock and details about the
program.
- Pulling cash out of your credit line before you refinance your
first mortgage.
Many lenders have "cash-out" seasoning requirements. This means that if you pull
cash out of your credit line for anything other than home improvements, they will consider
the refinance to be a "cash-out" refinance. This leads to much stricter
requirements and can, in some cases, break the deal!
- Getting a second mortgage before you refinance your first
mortgage.
Many mortgage companies look at the combined loan amounts (i.e. the first loan plus the
second) even when they are refinancing the first mortgage. If you plan on refinancing your
first, check with your mortgage company to see if having a second will cause your
refinance to get turned down.
|
|
