We are surely at historic lows in mortgage interest rates and there is much to be gained by refinancing your home mortgage, but accomplishing this requires a systematic approach and a careful attention to detail. The new economy has brought with it a heighted sense of risk and banks may require some convincing before opening up the money gates. There are a number of things to be aware of that, if understood, will help to make your loan application process smoother and more successful. I hope that the following ideas are helpful.
The Refinance Process
In general, seek to refinance if you can do so at a significantly lower rate (2 percentage points or so) and at a reasonable cost (Discount points). However, if you are behind in your existing payments, have little or no equity in your property, or don’t qualify for a refinance for other reasons such as a low FICO score or inability to document income, the refinancing process may prove to be daunting.
The Second Mortgage or Home Equity Line of Credit
In some cases, refinancing a first mortgage application may get snagged due to the presence of a second mortgage or home equity line of credit (HELOC). In this case, the second mortgage holder must agree to “Subordinate” their loan to the first mortgage holder. If the homeowner is in good standing subordination may be granted, but processing takes time so be sure to allow for this. Also, if the resulting combined loan amounts exceed a certain ratio to the property value (usually 80% – 85% Loan To Value), a modification of the HELOC loan may also be required before the refinance will be granted. In the current market, where home values have fallen, this may well come into play.
Deliver the Information the Servicer Wants
The single most important part of the process is to provide the servicer all the information about you that they need to make a decision. While this information is pretty much the same for all servicers, each has its own formats that it expects to be followed.
Accuracy is Key
Filling out forms correctly and completely is critical. An application with obvious errors may fall to the bottom of the pile, or it may lead the servicer to conclude that you do not qualify for refinance or a loan modification when, in fact, you do. Being accurate is a challenge for some borrowers because most applications are not user-friendly.
Deliver Information as Requested
Most servicers prefer to receive documents by fax, although some also provide mailing addresses. A few servicers want borrowers to call them before submitting detailed data, and provide only telephone numbers. They evidently prefer to have their own staff participate with the borrower in compiling the information.
Follow up is the Key
Even though the loan originator is working to close your loan, remember that you must be the driver of the process. Mortgage companies and banks are busy helping many customers and dealing with countless details, so remember that as primary beneficiary; you must also be the primary driver of the process. In the long run, the money that you save every month with your new loan will make the effort well worth your while!