Today’s refi market is hot. Falling interest rates have created a demand for home refinancing as never before. Scams and pitfall abound. Use these tips to make your refi safe and secure.
CHECK YOUR CREDIT WELL BEFORE YOU START
Before laying out any money for refinancing fees, check your credit report. The reports cost about $9 each. Get a report from each of the three main credit bureaus because information recorded varies with each provider. Contact them at Esperian 972/390-3674, TransUnion 714/447-6032 and Equifax 800/777-3329.
Once you have you credit report in hand, make a list of the negatives or errors that will have to be corrected or disputed. Errors do creep into even the most pristine credit holder. The dispute process could take months, so it’s a good idea to begin correcting errors or making corrections at least six months before you refinance your home.
Keep in mind that no short-term strategies are going to repair long-term credit hits or poor credit scores. If you’ve been habitually late paying bills, and regularly fall behind by 30, 60, 90 days or more, your score will be less than 620. If it is, then you’re in subprime territory where the costs for refinancing will be higher if you can qualify at all. A quick trip to a lender’s office will determine the type of loan you can or can’t qualify for, and what types of increased costs you can expect. Sometimes the refi net yield may be a wash depending upon how much you still owe on your original loan and increased closing costs and fees. If so, it’s better to pass rather than spend the money.
FIGURE YOUR RATE OF RETURN
Refinancing either yields a lower interest rate and better loan terms, or quick cash from your home's equity. The lure of quick cash to use as you like is strong. But a refi isn’t always the best solution. Look beyond the cash or rates and see what the actual costs will be, amortized over several months for the type of loan you want.
Rate-and-term refinancing pays off the existing loan with money from the new, using your home as collateral. It’s useful because it yields lower interest rates or shortens the time it takes to repay a loan. This refinancing offers several options, including switching from an adjustable rate mortgage (ARM) to a fixed, or from a fixed to an ARM. If you currently have an ARM about to adjust upwards, refinancing with a fixed-rate mortgage can offset the costs of the ARM’s increased interest. If you plan to move in a few years, you could refinance with an ARM at a lower rate. Or you could refinance your 30-year loan to 15.
Cash-out refinancing provides cash after paying off your existing mortgage, closing costs, points and any liens. This is a useful option if you bought you home for a lower amount than it’s current appraised value.
DETERMINE HOW YOU WANT TO BE TOUCHED
A quick internet search reveals hundreds of lending institutions more than willing to refinance your home. You need to choose between the face-to-face contact a local mortgage bank or credit union offers, vrs internet lenders whom you may rarely talk to and never see. Some internet lenders are linked to actual brick-and-mortar financial institutions or mortgage brokers. Others are virtual banks or brokers.
A local banker offers familiarity and people you know and trust. They offer a more simplified and sometimes faster process offering everything you need under one roof. They also offer savings by providing better terms depending upon the amount of your deposited assets.
The downside is that mortgage banks only offer limited programs which may not be the best fit for you.
On the other hand, a mortgage broker may represent hundreds of loan products from different lenders. The broker gets paid a commission to match your needs with a loan at the best price. Once approved, you deal directly with the loan originator. A broker can be faster than a bank and better able to match your needs by finding a national lender that can save you money.
The downside is that brokers are not as tightly regulated as banks. Some unethical brokers try to insert hidden costs into your loan increasing their profit margins. Their focus remains on commission rather than on your needs.
Local credit union officers can give you a much more personalized service. The disadvantage is that the existing loan programs they offer may be limited.
DO YOUR HOMEWORK
Research the mortgage process and understand the various types of loans offered by different lenders. Ask friends and family members for recommendations. Check the credentials of any broker you decide to work with by contacting your state’s department of banking or division of real estate. You can find this information with an online check of the Library of Congress for an index of state and local government websites. Contact the local Better Business Bureau for any complaints on file.
SHOP AROUND AND GET IT IN WRITING
Compare offered deals on a point-per-point basis. Be wary of quoted rates during the refi boom because there are plenty of dishonest lenders willing to quote unreal rates initially to reel you in, then add fees at the last stage of the refi process hoping you won't notice. If you do, they may try to force you to accept these with fear tactics. Buyer beware.
Your lender is required to provide a document called the good faith estimates (GFE) of fees due at closing. Typical closing costs run 3-5% of the sale price, so wait until you receive the GFE before committing. It’s a good idea to obtain GFEs from several lenders, so you can compare costs and get clarification about discrepancies, and use to negotiate lender fees or for third-party fees the lender marks up.
Keep in mind that the current refi boom can work to your advantage. There are a great deal of lenders now hungering for your business, so be prepared, ask questions, ask for proof and be ready to negotiate fees that seem high to you. Also remember that before you commit, you still have the right to nix the whole deal within three days and all fees must be returned to you by law.
http://www.essortment.com/career/moneytipsref_twtz.htm
