Special offer

Thinking of Refinancing - BEWARE before you commit

By
Mortgage and Lending with Cambria Mortgage NMLS 274132

Mortgages Unlimited, Minnesota

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)

Paul McFadden
Responsive Pest Control - Seattle, WA
Pest Control, Seattle, WA.

Joseph: Thank you. I second everything you say. I belive when it's all said and done that the number of closed loans won't be significantly higher because of what you said. Again, only time will get right what has gone so wrong. Take care.

Jan 01, 2009 03:01 AM
Melissa Cochran
Hunt-Miller Insurance Agency - Macon, GA

I wanted to add a scenario.  If you closed on a new home or refinanced last year prior to September with a Lender Paid Mortgage Insurance loan program... refinancing to take advantage of a today's lower rates most likely will not be in your best interest, especially if the value on your home is not substantially higher and you will still require mortgage insurance of some sort.  Rates aren't everything... if your payment is going to go up or morgage insurance is required.

Jan 01, 2009 05:08 AM
Josh David
Bridgeview Bank Mortgage - Tampa, FL
Purchase Specialist... www.joshdavid.us

Great post, I think that most should have a better outlook in regards to a refi, rates are low, and it's time to make some money...

JD

Jan 01, 2009 06:18 AM
Bill Black
Guaranteed Rate NMLS# 2611 - Vancouver, WA
VP Mortgage Lending

I am seeing this everyday as well... seems like the appraisers are having to include the short sales and foreclsoures in certain markets because thos are the ONLY transactions that are occuring so it becomes the market norm.

One thing I am having my team do is position ourselves their clients to be in a position where they have a "mini file" for the client along with permission to start the loan process at the first sign of a streamline Fannie/Freddie no appraisal refinance. FHA has allowed this and now Fannie/Freddie is basically goverment owned I feel this is one of the things Obama's group is going to implement.

At first I was a little challenged with this but after looking at some of th other ideas they had I realized that this is not costing the tax payers money and will save homes, lower payments and be one of the beginnings of a positive change we will see in 2009.

We have kept so much money on Wall Street and it's time to get it back to Main Street.

I may be wrong about the no appraisal loan but if I am not then we will have some incredible benefits from being prepared. Worst case scnerio is that my clients know that I always stay optimistic and upstream to the market.

Bill Black CMP

America One Finance

Vancouver, Wa.

www.aofdowntown.com

Jan 01, 2009 11:21 AM