Thinking of refinancing to today's great rates? BEWARE before you commit!
Saint Paul, Minnesota: Real 30-year fixed interest rates without discount points have been hovering right about 5% lately for those with high credit scores and plenty of equity. Lender phones are ringing off the hook with mortgage refinance applications at their highest level in more than 5-years!
While this sounds great, applications don't necessarily equal loan closings. A monstrous black cloud is about to burst on many unsuspecting applicants.
Two major issues are crushing refinance dreams as after application, many borrowers are finding out they do not have the equity position or credit to actually get a great deal closed.
A prime example is a customer of mine who bought a new home in October 2006. At the time, he put 25% down from the sale of his previous home. Today, I would be able to lower his interest rate about 1.25%. This would save him approximately $202 per month. Payback for closing costs is under two years, and he plans on living in the home a long time. Therefore this customer would appear ripe for a refinance.
Problem one? His property value has dropped to a level where his NEW loan would have a loan-to-value of 90% (a loss of 15% in value).
I now have to add mortgage insurance to his loan, MAKING HIS NEW GREAT RATE REFINANCE PAYMENT GO UP. Dead deal.
Problem two? Credit score requirements. Another recent customer has a first and second loan he wants to refinance into one new loan at today's great rates. He has heard all the rate news and is ready to take advantage, as he thinks he could lower his rate 1.25%.
In years past, if you qualified for a conforming loan, everyone got the same conforming rate. It didn't matter if your score was a 620, or an 800. Today, you may get a conforming loan, but rates vary greatly depending on your personal situation.
In my example case, because we are paying off a second mortgage, this is considered a higher risk "cash out" transaction. His middle credit score was just 659. Therefore, while I could do the loan, his rate would have been 5.875%, down just 1/4%. Dead deal.
Bad lender problems too. To further complicate matters, and to potentially throw more egg on the mortgage industry face, inexperienced and bad lenders once again are promising the world to customers without doing a proper analysis of the customers situation.
Many of these lenders demand $300 - $500 non-refundable application fees, then send an appraiser to the customers home. The appraisers are told to collect their fee "at the door".
Two weeks later, the customer is told one of the two examples above, and that their great deal isn't so great after all and the application does NOT turn into a closing.
DON'T LET THIS BE YOU. Make sure you are working with a true professional Loan Officer and Mortgage Company. Make sure you ask about credit scores and talk about estimated property values and how they may effect your great deal.
DO NOT EVER PAY APPLICATIONS FEES, and DON'T believe everything you hear, especially from a telemarketer. There are plenty of sharks still left in the mortgage sea.
With a little customer knowledge, you may be able to take advantage of today's rates, or save yourself unnecessary application fees and appraisal costs.
(c) 2009. Metzler Group. www.JoeMetzler.com
Comments(4)