By Dian Hymer
Interest rates are at 30-year lows, and homeowners are refinancing at a record pace. Some homeowners -- even those who purchased their home relatively recently -- are able to save several hundred dollars a month through refinancing.
But, don't expect the process to be a piece of cake. The mortgage industry is inundated with refinance applications. As a result, it's taking longer to process mortgages than it did last year when rates were about 1 1/2 percent higher.
You can help the refinance process along by being organized, patient and realistic. Ask your lender or mortgage broker for a list of all the financial documents you must provide for loan approval. Provide these documents promptly so that your loan package can be submitted to underwriting as soon as possible.
The lender will also need a current appraisal of the property. Appraisals, which took days to complete last year, now take anywhere from two to six weeks. If you have a copy of an appraisal of your property that was done within the last few years, give it to your loan agent. This can provide a useful data source for the current appraiser.
Make sure that you use a mortgage broker or lender that has good working relationships with several appraisals who specialize in your local market. Appraisers give preference to brokers and lenders that routinely send them a lot of business.
If you purchased within the last year, when the market peaked, your home could appraise for less than you paid. A low appraisal can ruin your refinance plans.
Suppose you paid $500,000 for your home last year using an 80 percent ($400,000) mortgage. The current appraisal comes in at $475,000. The lender is willing to give you a mortgage for 80 percent of the new value, or $380,000. You'll be $20,000 short.
Refinancer Tip: Recently, a lender told homeowners, who bought their home in Oakland, Calif., six months ago, that the current value of their home was less than they paid for it. The homeowners called their real estate agent who was able to provide the appraiser with recent comparable sales in the neighborhood that supported the purchase price, even in the current market. The appraiser adjusted the appraised value and the refinance went through. The refinance resulted in a $300 a month savings.
Opinions differ on whether or not it's a good idea to lock in an interest rate when you submit your loan application. A "lock in" is a commitment from the lender to loan you money at a certain rate. The locked rate won't rise as long as your loan closes within a specified time. There's usually no up-front charge to lock in, but the longer the lock, the higher the interest rate on your mortgage.
One theory about locking today is that rates aren't likely to go up soon. It could take four to six weeks to process your loan. If you lock for 45 days, you'll pay a higher interest rate on your mortgage. But, if you hold off until the appraisal is done, and then lock for 15 or 30 days, you'll get a lower rate.
On the other hand, some feel that with the current economic uncertainty, and a war in progress, it's safer to lock in a rate. Financial markets don't like uncertainty and interest rates can change abruptly.
The Closing: Don't fall into the trap of waiting for the lowest possible rate. It takes time to complete the process. And we only know for sure that rates bottomed when they're on their way up again.
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