Four steps to a stress-free refi
By
Holden Lewis • Bankrate.com
Continuing low mortgage rates helped keep alive a refinancing boomlet in mortgage offices across the United States. Whenever refinancing is hot, it makes two things more likely -- delays at the lenders' office and anxiety in borrowers' stomachs.
"People want to know, 'How do I get my loan file at the top of the stack?'" says Lori Vella, vice president for Washington Mutual.
Here are four things you can do to gain an edge over other refinancing applicants and to make the loan process run more smoothly:
· Know why you want to refi;
· Provide paperwork promptly;
· Lock long;
· Keep in touch, but not too much.
Know the 'why' of your refiThe first step, figuring out exactly why you want to refinance, is key. "'Because rates are low' isn't the sole reason to refinance," Vella says.
Getting a home loan is like buying a vehicle: You have many choices, and only some of them are right for you. When you go to an auto dealer, the salesperson wants to know whether you want to haul stuff, have fast 'n' furious fun, or feel like a master of your domain. Depending on your priorities, the salesperson might recommend a sedan, pickup truck, sports car or sport-utility vehicle.
Likewise, different mortgages meet a variety of needs. Do you want to refinance so you will have the lowest possible monthly payment? (That's a trickier question than it appears.) Do you want to get rid of mortgage insurance? Do you want to pay off the loan quicker? Do you want to get cash by borrowing more than you currently owe? Do you want to brag about your low rate and make your friends and neighbors jealous?
It helps if you can guess how long you'll live in the house.
"The more prepared the consumer is, the more that we can give them a tremendous amount of advice and counsel," says Doug Perry of Countrywide Mortgage. "Lenders are very eager to provide a great deal of advice to narrow down the mortgage products as a means of accomplishing financial goals."
Perry, who is first vice president of consumer markets, says Countrywide has more than 80 mortgage products, consisting of various fixed- and adjustable-rate loans for an assortment of periods. Most brokers and lenders can offer dozens of mortgage products, just as an auto dealer offers dozens of models and trim levels and colors.
Many homeowners want to refinance to get the lowest possible monthly payment, but that goal is not as straightforward as it seems. The lowest possible payment would come from an interest-only loan, but that type of mortgage is a good fit for only a few.
A mortgage that adjusts monthly or annually will sport a rock-bottom rate -- that is, until short-term adjustable rates rise above today's long-term rates. There are "hybrid ARMs" -- adjustable-rate mortgages that have a low introductory rate that lasts three, five, seven or 10 years, then adjusts annually thereafter. Those mortgages work for people who are pretty sure they will move in about three, five, seven or 10 years.
Perhaps you want to lower your monthly payment, but don't want to start anew. Just ask the lender to amortize the new loan for the remaining length of the current loan. For example, if you are three years into a 30-year mortgage, you can ask the lender to set up the refinanced loan so that you're scheduled to pay it off in 27 years. Or you can refinance your home loan to pay it off in 15 or even 10 years.
Bring your papers, please
When you apply, ask your lender for a list of exactly what documentation and information you must provide. This step separates the fast customers from the laggards.
"If I were a consumer -- which I am -- and I wanted to make sure that my transaction got preferential treatment, or among the best treatment, I would make absolutely sure as a consumer that I understood completely what was expected of me," says Mike Rich of IndyMac Bank emphatically, "then I would spare no horses in getting whatever documentation that was requested by the lender to that lender as expeditiously as possible.
If you're applying in person, you can bring in the bank statements, pay stubs, tax returns and other paperwork when you apply, and if you're missing a critical document, you can rush home and get it. Not so if you apply over the phone or the Web, as IndyMac's consumer customers do.
When you work with a remote lender, try faxing or e-mailing scanned documents if you can, Rich recommends. Send bulky documents by overnight courier. Make sure you have the correct name and address of the person who is to receive the papers.
Vella says refinancing customers often forget two critical pieces of information. First, they sometimes forget to bring in their hazard insurance documents. At the least, borrowers should have the name of their insurer and the policy number. Second, many lenders want to verify the last two years of each borrower's employment. That means that if you have taken a job with a new employer in the past two years, you need to bring the address and contact name and phone number of your previous employer.
Perry hastens to point out that some lenders, including Countrywide, allow current customers to apply for refinancing with little paperwork.
Get the right loan lockMany lenders are telling refi customers that their loans will take up to 60 days to close. Other lenders stretch their estimate to 90 days. If you want to lock at today's low rates, make sure the lock extends at least up to the lender's estimate of how long it will take to close the loan.
"A consumer needs to know what is being guaranteed with the rate lock," Vella says. If you lock for 30 days and the lender takes 60 to get to closing, you don't really have a rate lock. "I would recommend that the borrower not lock in less than 60 in this rate environment because it is taking longer to close," Vella says.
It is taking a long time not only because loan offices are busy, but also because appraisers are swamped and so are title agents and title attorneys. Reserving a table in a title office is like booking a reservation at Manhattan's hottest restaurant: It's hard to get in, and you might have to settle for a less-than-ideal time of day.
Stay in touch, but don't pester
With the delays and the worries over paperwork, borrowers get antsy when they haven't heard from their lenders in a while. They want to know what's going on with their loan. "To call every few days probably doesn't make things go any faster," Vella says diplomatically.
She suggests that you discuss with the lender or broker how often you want to be contacted, even if it's just to hear that the lender is waiting for the appraiser to visit the house. If you want a phone call every Friday, say so, Vella says. If you want a phone call every time something significant happens, say so.
Ask for a timeline of the loan -- a document that spells out when each step is expected to be completed. "It relieves stress on the part of the borrower," Vella says.
Rich says "the best of the best of the loan officers" give their customer's timeline routinely, without being asked.
Getting a timeline from the lender might not get your loan closed before your next-door neighbors who applied on the same day, but it helps you understand what's taking so long -- and that can be the difference between a stressful and a stress-free refi.
