You would have to be living under a rock if you haven’t heard at least one Realtor® or mortgage broker say that it’s a good time to buy a home or refi your current mortgage. Like many others, I decided it was time to refi my home’s mortgage. My current loan is at 5-1/8%. My goal on a refi was 4% or lower to make it worthwhile to pay the closing costs. Here’s the process I went through.
My first step was to check my credit rating score since with the new Federal regulations, lenders are being much tougher. Without a good score, they won’t grant a refi or they wouldn’t give the lowest rate.
The 2nd step was to see if there was a way to maintain a HELOC that I keep in case of an emergency. The HELOC is with Wells Fargo at 4¼%. I could “subordinate” but WF would have to agree to it. So I decided to pursue a refi with WF since that would simplify the subordination.
The 3rd step was to provide all the information and paperwork that the loan officer requested and to complete a loan application.
The 4th step was the appraisal on my home. This is the step that people often worry about due to home prices declining. The loan-to-value ratio is key to having the refi approved. I’ve owned my home for 14½ years plus I put 30% down when I purchased it so I have a lot of equity and knew this step wouldn’t be a problem.
The 5th step was for all the paperwork to go to underwriting. “Underwriting” is a little like that “undisclosed location” that Dick Cheney often went to. It’s the place that makes home buyers nervous because it’s impossible to get any status updates while it’s “in underwriting”. After a couple of weeks “in underwriting”, loans magically get approved … or not.
The 6th step is for the title company to call for a loan payoff from the current mortgage holder, to receive the loan packet from the new lender and to prepare the HUD Settlement Statement. Once that work is done, closing can occur.
My refi is now in the 6th step and we’ll close it early next week. My new mortgage will be at 4% for 20 years. I could have gone with a 15-yr mortgage, but given the uncertainty in the economy, I opted for a lower payment instead. I’ll be saving around $50/mo versus my current 30-yr mortgage at 5-1/8%.
HINT: As an aside, when I initially interviewed the loan officer, I was told that WF requires everybody to hold homeowner’s insurance and property taxes in escrow. I haven’t been doing that and I didn’t want to do it on the new loan. With so much equity in my home, there was no reason for WF to require this other than they want to make money on the interest of those escrow funds. They gave me an option to pay a higher interest rate plus points to avoid the escrow requirement. That was a deal breaker for me so told them to forget the refi. A week later, the loan officer called to give me what I wanted – no escrow and no points. So don’t be afraid to hold your ground if your situation is similar.
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