5 Ways to Screw Up A Mortgage Refinance
A mortgage refinance boom
is in full swing, as homeowners take advantage of record low rates by
refinancing their home loans, but a home loan refi is more complicated than it
was a few years ago. Home values are lower and paperwork requirements are
higher. It's easy to make mistakes while refinancing a mortgage.
To help you avoid some of the most
common errors, here is a list of five things you shouldn't do when you refi.
Be unrealistic about your home's value
Deluding yourself about the value of
your home is an excellent way to ruin a refi. Too many homeowners ignore
falling home values in their neighborhood, convincing themselves their houses
are worth at least what they paid for them.
In mortgage refinances today, the
most common reason for denial is a home appraisal that comes in too
low. The lender won't lend for more than the appraised value. And a lot of
homeowners go into denial about the decreased values of their homes.
Dither about your rate lock
Homeowners who delay locking a
good mortgage rate risk making a refi uneconomical.
While floating, you take the risk
that mortgage rates will go up. Rates could rise enough so that it's no longer
worth the time and expense of refinancing, says Bob Walters, chief economist
for Quicken Loans.
Also, rate locks have expiration
dates. So, it's a good idea to build a cushion of a few days in case there's a
delay in the loan closing, says Dan Green, mortgage planner for Waterstone
Mortgage in Cincinnati.
If you have a 30-day rate lock, it's
better to set the closing date on the 28th day than the 30th day -- just in
case there's a snag that delays the closing by a day or two.
Start renovating your house before the appraiser visits
Taking a sledgehammer to the
interior of your home before the appraiser arrives is a good way to get turned
down for a refi.
The appraiser delivers an estimate
of the home's value on the day of the inspection. The house will be worth less
on that day if the upstairs is a shambles or the bathroom fixtures have been
ripped out. That's the case even if the renovations,
when completed, will enhance the home's value.
"Don't start a renovation
before the appraiser gets there," Walters says. "You'll see this
sometimes when people are taking cash out and want to do a bunch of stuff. Do
not do that, because if you've ripped out half the second floor and it's not in
final condition, we can't close your loan."
If you plan to renovate, start after
closing the refi.
Disappear and ignore the lender's calls
Want to throw your home
loan into limbo?
"Go on vacation and
don't tell the lender," Walters says.
Lack of communication will
throw a pending mortgage into turmoil. "Remain accessible," Walters
says. "Don't disappear. Sometimes people do."
A lengthy disappearance
might have been a nonissue a few years ago, but it's not a good idea now.
Lenders' paperwork requirements are more stringent than they were three years
ago.
Expect the lender to ask
for documents sometime between application and closing. It might be a request for your latest pay stub or an
explanation of a big deposit into your checking account.
Stay in contact with the
lender and respond sooner rather than later to requests for more documentation.
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