Once again mortgage rates have plunged beyond my wildest imagination, so it is safe to say it is an excellent time for people to research what a refinance mortgage would do for you. However, there are plenty of costly mistakes homeowners can make when doing an online mortgage refinance. Here are the top eight:
#1 Not Doing Your Homework
Before you start submitting online forms to banks and mortgage lenders, you need to research your own situation first. To start, you should know what your credit score so you know roughly what interest rate you may qualify for.
Next, have a good idea of what your home is worth by talking to a good realtor. You also may check websites such as Zillow.com, but keep in mind that those numbers are estimates at best.
With that important information, now you can look at today's advertised mortgage rates from several lenders. Then use a simple calculator to determine what a rough new payment would be and how it could improve your monthly budget.
Doing all of this before you apply for a mortgage refinance online means that you will have a good idea of what your rate, closing costs and new payment will be – without anyone pulling your credit (doing so causes your credit score to drop a few points temporarily).
Make sure that you choose the right program, best suited for your goals. For example, Is a Cash Out Refinance a Better Choice than a 2nd Mortgage in Today's Market?
#2 Opening New Unsecured Debt Accounts and Running Them Up
Lenders will verify your credit when you apply online to do a mortgage refinance. They also will check it again before you settle. Making large purchases on credit cards can cause your approval for a refinance to be delayed. If you run up enough debt, you could even get rejected.
Remember: Every time you open a new card, your credit score will drop several points. The lower your score, the higher your mortgage interest rate.
You might save $75 on that TV when you open a store credit card, but you will pay thousands more in interest on your mortgage if your credit score drops significantly.
#3 Not Watching Your Credit Score
Some people tend to relax after they get their home mortgage, apply for new credit card accounts and run up debt. The average credit card debt in the US after all is nearly $14,000.
Doing these things can negatively affect your credit. A standard conventional loan refinance requires a score of at least 660. Also, if you are thinking an FHA loan, 100% of mortgage lenders will work with you at a 640 FICO. If you drop one point, at least 50% will not work with you. And fewer than 10% of mortgage lenders currently work with those with credit scores under 620. Believe it or not, there are still loan companies that approve refinancing for people with bad credit and MortgageRefinanceRight can tell you who these lenders are and what the requirements are for these higher risk loan programs.,
#4 Refinancing with Current Lender and Not Shopping
Many homeowners like to simply do a refinance online with their current lender. While there is nothing wrong with doing so, you could cost yourself significantly in your monthly payment.
It is a mistake to assume that your lender will give you a lower rate because you are a current client. You should still shop around and see if you can find a lower rate.
Further, compare the fees that lenders charge for originating a new loan. Last, get all mortgage refinance quotes in writing.
#5 Not Remembering Refinance Costs
Sending the lender a lower monthly payment is the major goal of a refinance, but it is not the only consideration. Before you start to think about refinancing, review your current documentation, starting with your monthly mortgage statement. Your promissory note will reveal to you whether or not there is no penalty to pay off your current loan early. The last thing you want to do is to spend a month in the process of refinancing only to find out that there is a $5,000 penalty that has to be paid if you want to refinance. In most instances this means your new loan amount would have to be increased $5,000 to cover the pre-payment costs and that raises the monthly payment and likely wipes out the savings as well. Don't laugh, because this example, happens to people all the time when applying for a mortgage refinance without being prepared.
Also, think about how many years are on your current mortgage, and think about what the closing costs will be on the refinance. If you are not going to stay in your house more than another two years, or are closing to paying off the loan, refinancing may cost you more than it saves you. Contrary to what your last loan officer said, closing costs and lending fees are negotiable. So it is essential to negotiate closing costs on a mortgage refinance, but don't get too aggressive on your first conversation with a lending representative.
#6 Not Thinking About Ratios
The first ratio to consider is your loan to value or LTV. This is the amount of the loan that equals the percentage of your home's value. If you want to borrow $80,000, and the home is worth $100,000, your LTV is 80%.
A LTV that is higher will not stop you from refinancing, but you may need mortgage insurance – an added monthly cost you need to consider.
Some homeowners also do a cash in refinance, which lowers the LTV by paying off part of the mortgage.
The other ratio to think about is your debt to income ratio or DTI. This measures how well you are able to pay what you owe. If your monthly income equals $4000 and the minimum payments on all debts is $800, then your DTI is 20%.
DTI guidelines have some flexibility from lender to lender, but if you have a high debt load when compared to your income, refinancing can be challenging.
#7 Failing to Lock Your Rate
Mortgage refinance rates change a lot, so be certain to lock in your rate with the lender. A lock will usually last for 30-45. Some companies will offer a 60 day lock, but it will cost you more.
Most experts do not advise gambling that rates will drop. If you already have a low rate, you probably should lock it in.
Getting a refinance approved is usually easier than a first time mortgage, but you still should submit all requested documentation quickly. If you have to extend the rate lock, it can cost you.
#8 Things Can Go Wrong
Refinancing often is straightforward with people with good income, good credit and full documentation of income and assets, and have been employed for many years.
However, things can go wrong. Common delays for a refinance include:
Some refinances can take three months to close. So, remember this as you are applying for mortgages online. If your paperwork is not all lined up, you can end up delaying the refinance, which can lead to higher rates and fees. - Article was written by Jenifer Stone
You don't have to look far to hear nightmare stories from good people having bad experiences refinancing a mortgage online, but it doesn't have to be like this anymore. MRR has perfected the process and simplified the procedures so homeowners can spend more time getting on with their life and less time tracking down loan officers and waiting for underwriters and processors to do their job. Find out why MortgageRefinanceRight has become one of the fastest growing online portals for smart homeowners in the United States.