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If you are considering getting in the refinancing game and save money, being well informed and moving fast are two important weapons you cannot afford to miss.
There are many reasons why you should move really fast once you start the refinancing process. First of all, rates are normally volatile: they go up and down very easily. When they are considerably attractive is obviously the best moment to obtain the deal you dreamed about, but it is also when the number of mortgage applications raises rapidly flooding the lenders’ desks and making the process more delayed.
You will find many other reasons which will force you to move fast once you start the refinancing process if you are really interested in getting a good deal. In first place, you risk a drop in your credit score the longer you dally. Every time you apply for credit, your credit score -- the three-digit number used by lenders to evaluate your creditworthiness -- can go down.
Especially now, after the recent mortgage crisis, keeping the scores at excellent levels have become more and more important. Fannie Mae, the biggest buyer of conventional loans in the secondary market, has approved new guidelines that have set extremely onerous interest rate adjustments to those borrowers with fair or less scores.
Unlike 2 years ago, when investors in the middle of a frenzy market eased their guidelines to ridiculous levels of risk, today, only those with exceptional credit scores have access to good rates as well as to loans with reduced documentation, privileges that used to be available to almost everyone in the past.
Fortunately, the credit scoring system most lenders use, called FICO (Fair Isaac Company), doesn’t punish you if you do your mortgage shopping in a relatively condensed period of time. All credit inquiries made within 14 days are lumped together as one, and your score doesn’t reflect any inquiries made within the last 30 days.
Obviously, the dilemma is that just when you are ready to make your move, a lot of other people probably are, too. The lower the interest rates, the more competition you will face trying to get lenders time and attention as applications tax their systems to the limit. So there are some steps you can follow to help yourself push your application to the top of the file.
Do your homework in advance. Understand the basics of how the loan process works and what various terms mean before you apply. You should know what the current rates are and whether you want to pay points to buy down your rate to a lower level.
Get advice from a loan expert regarding what would be more convenient for your especial needs: a fixed-rate loan, an adjustable or a hybrid (which remains fixed for three to seven years before becoming adjustable). If you decide on a fixed-rate, determine whether you want a 15-, 20-, 25- or 30-year loan. (The shorter the loan, the faster you build equity and the less overall interest you pay.)
It is also important to bear in mind that it is almost impossible to hit the absolute bottom. Nobody can forecast exactly how low interest rates might go or when they will start to rise. It is better to focus on trying to lock in the best deal you can find at the moment.
In addition, waiting for rates to fall too much might be counterproductive since your lender may consider your indecision as a sign that you are not really serious about the loan. Always ask your loan expert his opinion regarding the overall picture about the current rates and whether it is worth to wait or not.
Use the Internet. Most people use the Internet to shop for rates but pick up the phone once they are ready to apply. Starting your application on the Web, however, can help you accelerate the process.
Always use a broker, mainly if you have troubled credit, an unusual financial situation or are just overwhelmed by the process. It can pay to have an advocate who knows the system to help you sort through your options. That’s the role a good mortgage broker can play.
Brokers do business with many different lenders and often can offer you more options and programs to help you qualify, not to mention that are more service oriented and will always endeavor more to figure out how to get the deal done.
Have your paperwork ready. Here’s what most lenders will ask for:
* Pay stubs for the last month
* Your most recent W-2 forms
* Last year’s tax return (or tax returns for the past two years if self-employed or employed at your current job for less than 2 years)
* Bank and brokerage statements for the last month
* Mortgage statement
* Statements for any home equity loans or lines of credit
* Homeowners insurance statement
Call or email your loan officer or broker every few days until your loan is approved. Be polite and friendly, but make it clear you want the process to go as quickly as possible. Obtain a free consultation
