During the Break-Up, 10 Strategies for Hassle-Free Mortgage Refinancing
As of early-November 2007, the real estate market nationwide is experiencing a dramatic slowdown in home and condo sales, and there appears to be little good news on the horizon. Interest rates are on the rise, plus mortgage lenders have become much stricter in regard to their approval process. These days, it’s difficult to obtain a mortgage with no money down, if you’re unable demonstrate a steady income, or if you have a poor credit history.
If you’re in the midst of a divorce and are being forced to sell real estate quickly, finding a buyer willing to pay top-dollar, or even fair market value for your property might be a challenge. On the flip side, if you’re newly single and looking to buy a home or condo, your selection will probably be vast, and in many areas, you’re apt to find excellent deals.
For a variety of reasons, it might make financial sense to keep your existing home and refinance it, either to cash out on some of your equity in the property, to lower your interest rate, or to convert from an adjustable rate mortgage to a fixed-rate mortgage. A financial planner, accountant or knowledgeable mortgage broker/lender will be able to assist you in deciding if refinancing an existing mortgage makes sense.
Deciding to refinance means finding a reputable mortgage broker whom you’re comfortable dealing with, and who is willing to help you find a mortgage product that’s best suited to your needs, based on your current credit score and financial situation. You also want to insure the broker you opt to work with is willing and able to get you the best rates possible, while at the same time, charging you the lowest fees.
Refinancing is the process of replacing a mortgage on a property with another mortgage that offers different, hopefully more financially appealing, terms. It’s common for homeowners to refinance multiple times before fully paying off their home or condo. Each time you refinance, however, you’ll go through a similar process as you did when you first purchased the home or condo and obtained your original mortgage.
By refinancing, you could potentially lower your interest rate, cut the duration of the loan, cash-out on some of the equity in your home, and/or obtain better financing terms. When you refinance, many of the fees associated with the process can be built into the new loan to avoid out-of-pocket expenses at the closing. However, expect to pay to have your property appraised at an out-of-pocket cost of between $250 and $350.
Regardless of the type of mortgage you have or wind up with, your monthly payment is determined by a number of factors, including the loan’s principal, it’s interest rate, the length of the mortgage, the terms of the loan, and the fees you are required to pay in conjunction with the loan (including the closing costs). By refinancing, if you can lower your principal, reduce your interest rate, obtain lower fees, or decrease the length of the loan, for example, your could potentially save many thousands of dollars over the 15, 20 or 30 year life of the mortgage. Plus, you could potentially lower your monthly payment and eliminate financial uncertainly associated with possessing an adjustable rate mortgage (where the interest rate can change and dramatically increase the amount of your monthly payment).
The actual paperwork that needs to be signed is almost always very similar, whether you’re first acquiring a mortgage or refinancing,” stated Adam Walker, a cofounder of Roswell, Georgia-based Homestead Settlement Solutions, a one-stop-shop that handles real estate closings nationwide. The big difference is that with a refinance, there’s a three-day rescission period. This gives the borrower three days to decide to negate the new mortgage simply by notifying the lender or closing agent. During this time, the borrower should again review all of the terms. Make sure all of the rates and fees listed within final paperwork are consistent with what was originally agreed to. Compare the good-faith estimate and HUD-1 statements you were given prior to the closing with the paperwork completed at the closing.”
10 STRATEGIES TO HELP YOU REFINANCE YOUR MORTGAGE:
1. Review Your Credit Reports and Credit Score.
Before you start filling out mortgage applications and shopping around for the best refinancing deals, carefully review your credit report from each credit reporting agency (Equifax, TransUnion and Experian), and determine what your credit scores are. Your official FICO Score is important to know. When you attempt to refinance, the broker will evaluate all three of your credit scores, plus look carefully at your credit history. If your credit score is below 620, you’ll have a difficult time refinancing in today’s market. Assuming you can get approved with a below average credit score, you’ll wind up paying an extra-high interest rate and exorbitant fees. Within a 30-day period, an unlimited number of credit inquiries can be made by mortgage brokers and lenders, so you can shop around for the best deals, without worrying about your credit score taking a negative hit as a result of excessive inquiries.
2. Make Mortgage Payments On Time Prior to Refinancing.
For at least 12 months prior to refinancing, make sure you make all of your current mortgage’s monthly payments on time. Even one 30-day late payment could make it extremely difficult to get approval for refinancing. Ideally, you want to be able to show on-time payments to all of your creditors and lenders. However, mortgage lenders/brokers look specifically at your mortgage payment history.
3. Gather Up The Necessary Paperwork.
Gather up your tax returns, W-2 forms, and pay stubs for the past two years, along with bank statements and other financial documents (related to investments, your IRA, etc.). Have this information organized and ready to present to the mortgage broker you opt to deal with. Always keep copies of this paperwork. You’ll also need all of the documentation related to your existing mortgage, plus know the current value of your home (based on an appraisal), the current amount owed on your existing mortgage, and the interest rate and terms of your current mortgage.
One of the best things you can do to insure a smooth refinancing process is to be upfront and honest about your employment, income and finances during the application process. All of this information will be revealed ultimately, but it could dramatically slow down the approval process if you’re not initially forthcoming or honest,” explained Laura Egerman, a title attorney employed by Equity National Title Insurance Company in East Providence, Rhode Island.
4. Find A Mortgage Broker or Lender to Work With.
It’s always best to find someone through a personal referral who’s had a positive experience working with the broker or lender they refer. Sit down with the broker/lender and discuss your current situation, before completing an application or committing to refinancing. Discuss your refinancing options and what fees are involved. Get everything in writing! In addition to finding a reputable broker, you’ll want to work with an individual loan officer or mortgage consultant whom you trust and relate to, and who is willing to discuss your specific needs, plus address your concerns. The broker should be willing to openly discuss all of their fees, including how much they charge for their services. A reputable broker will never encourage you to lie on an application or falsify financial records to insure your approval.
There are more than20,000 mortgage brokers in America, and nearly 80 percent of all homebuyers (and people looking to refinance) work with a mortgage broker. A mortgage broker is just like a Realtor®, except instead of helping you find the perfect home, a mortgage broker helps you find the perfect home financing option, based upon your unique situation,” said Mark Giordani, who served as a senior mortgage consultant for several years at one of the largest privately owned mortgage brokerage firms in the United States, before deciding to pursue other professional interests.
The mortgage broker’s job is to collect specific information from you, then utilize that information to find you the best mortgage product you’d qualify for. The benefit to working with a broker is that they have relationships with many different lenders, so they typically have access to a much broader range of mortgage products. If you work with a specific bank or mortgage lender directly, you’re limited to only the mortgage products offered by that one company,” added Giordani.
5. Shop Around For The Best Refinancing Deals.
In addition to consulting with your local bank(s), credit union(s) and mortgage brokers, you can compare rates online using Web sites, such as www.bankrate.com, www.homegain.com, www.lendingtree.com and www.lowermybills.com. To save money, do your homework and compare at least three to five different refinancing offers. The broker or lender you opt to work with should be able to get your loan processed on time and have a good working relationship with lenders, offer you competitive rates, be willing to offer you the best refinancing deal possible (regardless of how much he or she earns in commissions and fees from the transaction), plus be honest, knowledgeable and experienced.
The very best way to find a mortgage broker is through a referral from someone you know and trust. Positive word-of-mouth referrals are one of the main ways I used to acquire new clients. Don’t fall for too-good-to-be-true offers in advertisements. If you can’t find a good referral from someone you know, sit down with three or four different brokers before choosing one to work with,” said Giordani.
There are potentially many benefits to working with a large and well-established mortgage broker who is licensed in multiple states. A larger broker tends to do more volume and can obtain better rates and potentially lower fees for their clients. One of the biggest complaints people have about some brokers is their lack of accessibility and follow-through. They’re too busy to return calls and they’re never available to answer questions. A good mortgage broker is someone you should be able to pick up the phone and call. If you need to leave a message, it should be returned in a timely fashion. If you find a mortgage broker who isn’t attentive to your needs, find someone else to work with right away,” added Giordani.
6. Review All Of Your Refinancing Options with Your Broker/Lender.
Once you choose a lender or broker, review all of the different types of mortgage refinancing options available. Determine what works best to meet your financial needs, and make sure you fully understand all of the terms associated with refinancing. Don’t just evaluate the APR (annual percentage rate), or what your ultimate monthly payment will be. Evaluate all of the fees, terms and conditions of the mortgage. In today’s marketplace, for most people, it’s a good strategy to avoid adjustable rate mortgage refinancing options.
7. Determine How You’ll Benefit By Refinancing.
Forget the hype and verbal promises! Crunch the numbers yourself! Before refinancing, determine exactly how you will be benefiting from the process of refinancing. Calculate how much you’ll save over the life of the loan. How much will your monthly payment increase or decrease (hopefully decrease)? Figure out how long it will take you to recoup the expenses associated with refinancing, and determine how much you will have to pay in costs and fees. You also want to know what out-of-pocket expenses you’ll be responsible for prior to and at the closing. All of this information should be put in writing.
8. Learn The Relevant Terminology and Understand.
The Paperwork During the refinancing process, invest the time to learn the relevant terminology. Then, have the loan officer or broker review all of the paperwork, so you fully understand the terms and conditions you’ll be legally bound to once you sign the paperwork at the closing.
9. Watch Out For Prepayment Penalties.
As you evaluate refinancing deals, beware of prepayment penalties. This is a fee that the lender can charge you, the borrower, if you opt to pay off the loan before the end of its term. The lender can use a prepayment penalty as a deterrent against you refinancing again in the future, because it could make refinancing again extra costly. Whenever possible, never agree in writing to a prepayment penalty.
10. Avoid Problems At The Closing.
At the closing, make sure all of the terms, rates and fees that were previously agreed to are stated in the paperwork you’ll be signing. The contracts you sign at the closing become what will be legally binding for the duration of the loan. Any verbal promises have no legal baring once this paperwork is signed. If you notice the broker or lender has made any last-minute changes to the loan terms, such as an increased interest rate, beware! By having an attorney who represents you review all of the relevant paperwork, you greatly reduce the risk of last-minute problems.
One common closing delay is that the borrower doesn’t realize that personal checks are not accepted for any fees that are due at the closing. A certified bank check or cash is almost always required. When you refinance, the closing will typically take place either in an attorney’s office or in the closing agent’s office. The attorney or closing agent used is hired by the mortgage broker or lender. Thus, this person does not represent you or your financial interests. You have the option of having your own attorney present at the closing. It’s at the closing that all of the paperwork associated with the new mortgage will be signed. A typical closing lasts about one hour. However, if any problems are uncovered with the paperwork, for example, “This can cause delays,” stated Walker. I recommend allowing at least two hours. This is rarely something that can be completed during your lunch hour, and it’s definitely not something you should rush.”
Many things can go wrong at the closing, explained Walker. Some people opt to back out of the loan at the closing because they weren’t fully informed of the ramifications pertaining to the adjustable-rate loan or interest-only loan, for example, they’ve qualified for. In some cases, the borrower isn’t informed in advance about certain costs or fees, such as taxes or insurance. Upon doing the last minute calculations, the borrow realizes he or she can’t afford the new loan,” he said.
By doing your research and understanding the terms and conditions of your mortgage or the refinancing deal you’re being offered, you’re more apt to save money and have a hassle-free refinancing experience. This is not always a quick process, however. Depending on your situation, allow three to six weeks from start to finish, once you find a broker/lender to work with. If you’re in need of cash to pay off a divorce settlement, for example, refinancing your mortgage might be a viable option.
