Posted on: 21st Sep, 2005 09:24 pm
When you've decided on a refinance in order to switch over to a better interest rate/loan, you should be aware of the mistakes most people make while refinancing and how to avoid them. A little know-how about the common refinance mistakes will prevent you from taking a wrong step during the process. Here are the top 9 mistakes you should avoid when you refinance.
1. Refinancing without shopping around
Many believe it's easier to get a refinance from their current lender. But your current lender may not offer the best option in terms of rates, fees, and other terms and conditions. So, it's better to shop around and compare the offers until you find the right loan for you.
Even if you do decide to refinance with your current lender, you'll need to re-qualify for the new loan. This means your current financial situation will have to be verified by the lender.
Even if you do decide to refinance with your current lender, you'll need to re-qualify for the new loan. This means your current financial situation will have to be verified by the lender.
2. Unaware of the Break-Even period
When you are trying to refinance, you'll have to pay closing costs that can be offset by your savings due to the lower interest rate. The time when your savings fully offset the costs of the new loan is the break-even period.
You need to calculate the break-even period, so that you can occupy the property until then and recoup your costs. This is helpful when you refinance with a similar loan in order to take advantage of a lower interest rate and monthly payments.
You need to calculate the break-even period, so that you can occupy the property until then and recoup your costs. This is helpful when you refinance with a similar loan in order to take advantage of a lower interest rate and monthly payments.
3. Not receive a Good Faith Estimate
Most lenders are likely to provide you with a Good Faith Estimate of closing costs within 3 business days of receiving your loan application. This helps you to trace any hidden costs that you can avoid. So if the lender doesn't provide you with an estimate, try contacting the lender. If the lender refuses to provide you with an estimate, contact another lender who will.
4. Considering Assessed Value of property
Do not depend upon the county tax assessor's assessed value of your property. The loan amount isn't based on the assessed value, but on the appraised value of your property determined by a real estate agent using either the Sales Comparison Approach or the Cost Approach.
5. Paying for an appraisal even if home value is low
It's better not to agree to pay for a formal appraisal when you are aware your appraised home value may be low enough to qualify.
If you think the appraised value of your home is low enough to get a good refinance loan, then you should ask your current lender to determine your home value using the automated valuation model (AVM). This approach takes into account the value of similar homes in the neighborhood.
The appraiser gives you a range of possible home values, which will allow you to determine whether you can afford the home with the financing that is available. You can even check out the home affordability calculator to know how much mortgage you will be able to afford: http://www.mortgagefit.com/calculators/howmuch-afford.html .
If you think the appraised value of your home is low enough to get a good refinance loan, then you should ask your current lender to determine your home value using the automated valuation model (AVM). This approach takes into account the value of similar homes in the neighborhood.
The appraiser gives you a range of possible home values, which will allow you to determine whether you can afford the home with the financing that is available. You can even check out the home affordability calculator to know how much mortgage you will be able to afford: http://www.mortgagefit.com/calculators/howmuch-afford.html .
6. Signing loan docs without proper review
Check the loan docs before signing on them. Read the terms and conditions thoroughly before you sign them. If possible, ask the lender to allow you to read the papers in advance because you will not get enough time to go through all the docs at closing.
7. Not providing relevant docs in time
You can prevent unnecessary delays in closing if you submit the required documents to your lender on time. Otherwise, if closing is delayed, and mortgage rates go up then you may be stuck with the higher rate.
8. Getting a verbal Rate lock
It is best to get the rate lock in writing from your lender. This written statement includes your interest rate, length of rate lock, and other details of the loan program.
9. Taking cash from a HELOC (Home Equity Line of Credit)
Lenders often require that homeowners wait at least 6 months after taking money out of a home equity line of credit, before refinancing.
Moreover, if you withdraw money from your HELOC for anything except home repairs and then refinance, lenders will consider the first transaction as a "cash-out". This is because you've already accessed your line of credit. So, it's a good move not to pull out equity prior to a refinance.
Moreover, if you withdraw money from your HELOC for anything except home repairs and then refinance, lenders will consider the first transaction as a "cash-out". This is because you've already accessed your line of credit. So, it's a good move not to pull out equity prior to a refinance.
Refinancing mistakes can cost you a lot of time and money. So, it's better to avoid them and stay away from mortgage problems that could land you in foreclosure.
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Hi CAROLYN!
Welcome to forums!
If you're getting lower rates and plan to stay in the property for a longer period of time, then it will be a good option to refinance the loan. However, you should have equity in your property in order to get a refinance.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
If you're getting lower rates and plan to stay in the property for a longer period of time, then it will be a good option to refinance the loan. However, you should have equity in your property in order to get a refinance.
Feel free to ask if you've further queries.
Sussane
If a loan modification could be done for $1,100.00 ahd the rate would drop by .750% would that be considered cost effective?
Hi andreaanonymous,
Your query has been replied to in the given page:
http://www.mortgagefit.com/problems/costeffective-modification.html#190822
Take a look at it. Hope it helps you.
Thanks
Your query has been replied to in the given page:
http://www.mortgagefit.com/problems/costeffective-modification.html#190822
Take a look at it. Hope it helps you.
Thanks
having recently paid off the mortgage on my home appraised at 175,000. i refinanced 40,000 to pay off all credit card dept , purchase a new car for cash and eliminating all monthly bills except a mortgage payment of 450 $ i have a credit score of 765 and a job ive been on for 27 yrs . With it being a good time to buy investment property at forclosure prices and considerable equity in my home. Im considering refinancing enough to pay off the 40,000 and have 20,000 to 25,000 cash left to take advantage of this buyers market by investing in a duplex or triplex at forcloser prices for extra income as I prepare for retirement in a few years as well as leaving a good asset to my grand children for their future. Is this a wise move ?
is useing some of my home equity as a down payment on low risk investment property a good idea ?
hi nina,
the plan that you have mentioned here is quite good. you can buy an investment property by using the cash out money that you receive from the home equity loan. however, if you already have a mortgage on a property, then there are chances that the lender may not be ready to give you a mortgage in order to buy another property.
the plan that you have mentioned here is quite good. you can buy an investment property by using the cash out money that you receive from the home equity loan. however, if you already have a mortgage on a property, then there are chances that the lender may not be ready to give you a mortgage in order to buy another property.
Is it OK to pull cash out of my HELOC before my scheduled refinancing closing date? The HELOC will be closed upon refinancing.
hi chitowncharlie!
welcome to forums!
as the heloc will be closed after you refinance the exiting mortgage, it will be better if you do not pull out cash from that account.
feel free to ask if you've further queries.
sussane
welcome to forums!
as the heloc will be closed after you refinance the exiting mortgage, it will be better if you do not pull out cash from that account.
feel free to ask if you've further queries.
sussane
I'm refinincing with Quicken Loands, in the doc called Mortgage Note that I have to sign it says in paragraph 10(E): "Borrower agrees that should the Security Instrument and this Note secured thereby not be eligible for insurance under the National Housing Act within 60 days within 60 days from the date hereof, Lender may, at its opinion and notwithstanding anything in paragraph 10, require immediate payment in full of all sums secured by the Security Instrument. A written statement of any authorized agent of the Security dated subsequent to 60 days from the date hereof, declining to insure the Security Instrument and this Note secured thereby, shall be deemed conclusive proof of such ineligibility. Notwithstanding the foregoing, this option may not be exercised by Lender when the unavailability of insurance is solely due to Lender's failure to remit a mortgage insurance premium to the Secretary."
What does this means?
What does this means?
Welcome Rafael,
You should contact your local real estate attorney and he will help you in understanding the meaning of this paragraph.
You should contact your local real estate attorney and he will help you in understanding the meaning of this paragraph.
I have owned my house for 5 years. In that time I have only knocked my mortgage down from $83,000 to $77,000. My property taxes are getting out of control ($4,300 a year) and I took a MAJOR pay cut this past year. My current fixed rate is at 6.5 which is not terrible, but I need to lower my mortgage payments or risk falling behind on my payments for the first time EVER!! My house has climbed in value and is worth some where in the range of $96,000-$115,000. My credit was never all that great to begin with and I have had a few hiccups (like a private student loan going to collections) along the way so I am sure it is far from stellar now. Is a refinance something that would be a good option for me to lower my payments? I also thought about selling and moving to a cheaper area, but I dont even know if I could get a loan with my poor income and not so perfect credit.
Hi jryan,
If you have equity in your property, then you can go for the option of refinance which will help you in lowering your monthly payments as the rates are going low. You should contact your lender and check out if he will be ready to help you in refinancing your loan.
Thanks
If you have equity in your property, then you can go for the option of refinance which will help you in lowering your monthly payments as the rates are going low. You should contact your lender and check out if he will be ready to help you in refinancing your loan.
Thanks
We have been in our house for 4 years. The original loan was for 144,000. We owe 139,000 currently with a 6.5 % interest rate. Our current mortgage is 1,580....which includeds insurance/PMI. What can we do to lower this.....this seems really high to me. The value of the house is approx. 165,000
Hi JoshGoonie,
If you have equity in your property, then you can refinance the mortgage. As rates are going quite low, you will be able to get a low interest rate to pay off the loan. However, refinance will make sense only if you plan to stay in the property for a longer period of time or else you won't be able to offset the closing costs.
Thanks
If you have equity in your property, then you can refinance the mortgage. As rates are going quite low, you will be able to get a low interest rate to pay off the loan. However, refinance will make sense only if you plan to stay in the property for a longer period of time or else you won't be able to offset the closing costs.
Thanks
in new york do most banks allow a person not on the deed to be on the mortgage. Will they allow that person's income to be counted for the debt ratio. We are not married but have been together for 15 years