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Shopping
Around for a Lender
Shop
Around for a Lender
Your existing 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.
Break-Even
Analysis
Do 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 yr loan to a 15 yr loan,
it is much more difficult to perform a break even analysis.
Good
Faith Estimate of Closing Costs
Get 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.
Appraisals
Don't
pay for an appraisal if you think
that the house may appraise 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.
Do
not use the county tax
assessors value as the market value of your house.
Mortgage companies do not use
the county tax assessors 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.
Documents
Do
not sign your loan documents
without carefully 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 are 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 enough time to do
that.
Be
sure to provide all required 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 hassle you. Get the documentation as quickly as possible.
Many borrowers do not respond to documentation needs quickly and can wind up paying higher
rates if the rate lock expires.
Rate
Locks
Get
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.
Things
not to do Before Refinancing
Do
not pull 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!
Do
not get 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 if getting a second will cause your refinance to get turned down.
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