1. Choosing to refinance with your existing lender without
shopping around. Many homeowners mistakenly believe that it
is easier to work with your current mortgage company, possibly
because of the misconception that such loyalty is rewarded. However,
your current lender may not have the best rates and programs.
In fact, in most cases, even if you have been making payments
regularly and on-time to your existing lender, they will still
have to go through verifying your financial information all over
again.
Because most mortgage loans are sold on the secondary market
and are approved independently, your current lender will likely
require the same documentation as any other company.
2. Not completing a break-even analysis. How does the
cost to refinance compare to its potential monthly savings? Divide
the total refinance cost by the monthly savings to determine the
number of months you will have to keep the property in order to
recoup those costs. Example: if your refinance costs $2000 and
you save $50/month your break-even is 2000/50 = 40 months. In
this case, a refinance is not your best option if you plan to
stay in the house for less than 40 months.
3. Not obtaining a good faith estimate of closing costs (GFE).
All mortgage companies are required to provide a detailed, written
estimate of closing costs, known as a GFE, within 3 working days
of completing an application.
4. Using the county tax assessor’s value of your house.
A market value appraisal is much more accurate and individualized
than the value according to the government tax codes which often
do not take into account improvements or other significant renovations
made to the home. The market value quoted by an appraiser is the
value mortgage companies use to determine whether they will approve
the loan.
5. Not providing documents to your mortgage company in a timely
manner. Should your mortgage company request additional paperwork
for any reason, it is in your best interests to submit as soon
as possible. In order to secure any locked-in interest rate, the
loan must fund before the lock expiration date. Thus anything
that could help expedite the application and approval process
is best done in the most expedient manner.
6. Not getting a rate lock in writing. Always obtain a
written statement detailing the interest rate, the rate lock time
period and details about the loan program.
7. Getting a second mortgage before you refinance your first
mortgage. Since many mortgage companies look at the combined
loan amounts of a first and second mortgage, check with your mortgage
company if you plan to refinance your first mortgage to see if
obtaining a second mortgage will cause your refinance application
to be denied.
