Refinancing can be tricky and often hard to understand. Because most homeowners only refinance a handful of times throughout their lifetime, prospective refinancers understandably don’t spend a lot of time educating themselves about the mortgage refinancing process in the interim.
Every homeowner wants their refinancing to be simple and stress free. While no single list can completely cover all scenarios, following these do’s and don’ts for a successful mortgage refinance will help you decide whether refinancing is right for you, navigate the refinancing process, and sleep better at night knowing that you educated yourself and made a knowledgeable decision regarding your financial future.
Here’s our list of the top do’s and don’ts for a successful mortgage refinance – from beginning to end:
Making the Decision to Refinance
Do: Check your free credit report for errors; nearly 80% of all credit reports have them. Don’t let errors on your report prevent you from getting the best rates.
Don’t: Open any new lines of credit, shop for a new car or splurge on the designer bag you’ve been eyeing.
Do: Calculate and understand your breakeven point. This will give you an estimate of the time it will take to recover your refinancing costs before you benefit from a lower mortgage rate.
Don’t: Blindly accept what your mortgage lender tells you. Educate yourself. Crunch the numbers. Fully understand whether or not a refinance will help you before you sign the dotted line.
Do: Spend some time gathering personal and financial information. When you come to the table prepared, your mortgage refinance has a better chance of being smooth and successful.
Don’t: Show up at your mortgage lender’s office with a shoebox full of documents and a sign that says “sucker” on your forehead.
Do: Determine if you will have to pay a prepayment penalty for paying off your current loan early.
Don’t: Walk blindly into refinancing without knowing the repercussions for paying off your existing loan early. Speak with your lender for clarification.
Getting a Quote and Comparing Lenders
Do: Shop around. Use the Internet to your advantage to find the best rates.
Don’t: Believe that you will get the best rate by shopping at the bank where you have your checking account. While some banks do give their customers discounts, it’s unlikely that you’ll get a lower interest rate just because you do business there.
Do: Interview mortgage lenders as you would a doctor, lawyer or accountant. Take the time to request quotes and compare lender’s programs to your needs.
Don’t: Assume that all lenders and refinances are the same. Every individual deal has its own parameters, and every lender has their own version of “good customer service.” Be smart and read the fine print and choose the refinancing product – and lender - that best suits your needs.
Do: Learn what refinancing packages are available. As the questions: What loan programs do you have available for me? Can you estimate the monthly payment for each of the programs you’re offering me? What up-front costs will I have? What about points?
Don’t: Assume that all lenders are required to charge the same fees for appraisals, credit checks and other financing incidentals. Ask the questions; compare the findings.
Do: Inquire about lock-in rates and float-down provisions. Rates go up and down, and it will take 30 to 60 days for your refinance to close. The rate on the day you started may be different than the day of closing.
Application and Credit Check
Do: Ensure you’re comfortable and confident with your loan officer and the programs they have available before you submit a formal loan application.
Don’t: Start the loan process only the shop seven other lenders “just to see what they have” available to you.
Do: Make sure you have all your financial ducks in a row prior to making the application. This includes checking your credit report, organizing your financial documents and setting aside money for closing costs and other associated fees.
Don’t: Stall the process by being unprepared to move forward. When you’re ready to put in an application, you should be ready to complete the process.
Reviewing Disclosures and Financial Documentation
Do: Understand that all lenders are required to provide a HUD-1 settlement statement, which itemizes the fees that are charged at closing. Be sure to compare this document to the good faith estimate that was given to you at the beginning of the process to ensure consistency.
Don’t: Sign the dotted line before you fully understand what is being expected of you.
Escrow and Appraisal
Do: Be realistic regarding the value of your home. Too many homeowners ignore falling home values in their neighborhood and are unrealistic, which stalls the progress of your refinance.
Don’t: Bribe the appraiser. If you’re thinking about refinancing and you have the time to make small improvements to your home that would increase the value, consider doing them before you begin the refinancing process.
Do: Ask your lender to help you understand escrow, and whether or not an escrow account needs to be set up for your particular refinance. The expenses related to an escrow account can often be overlooked.
Closing the Loan
Do: The happy dance!
Thinking about refinancing? Consider Lenda for a smooth and successful transaction.
When you choose to partner with Lenda for your next mortgage refinance, you’d don’t have to visit the bank. You’ll understand every cost and fee, and telemarketers and sales people won’t harass you. We’ve streamlined the mortgage financing process and have put you in control of your refinance.
Knowledge is power. Learn more about the refinancing process by downloading our free eBook or by connecting with one of our team members today. We look forward to hearing from you and to making your mortgage refinancing an enjoyable and hassle-free experience. Connect today!