When mortgage rates fall to record lows, as they have in recent weeks, homeowners who see a chance to save some money race to refinance. Just be sure you don’t get stuck at the end of the line.
Refinancing is a surefire way to give yourself extra cash — three digits’ worth for most people — every month. And as the coronavirus outbreak has tipped consumer sentiment from uncertainty to hoarder-level panic, lenders have been swamped by people looking to grab any savings they can, while they can. For the week ending March 6, the Mortgage Bankers Association reported a 55 percent increase in refinance applications from the previous week.
It is not clear how long lenders can maintain the pace. Do they have the staff they need?
“Truly, I don’t think anyone does,” said Victor F. Ciardelli, chief executive of the home lender Guaranteed Rate. “We are spending all of our time coaching our entire team on the most efficient way to take a loan from start to finish.”
If you haven’t refinanced in years, you’ll find that some things are different. There are digital systems that can check your assets and salary. Scanning and uploading can mean fewer lost documents, and some appraisals are virtual. Meanwhile, some lenders are locking in interest rates — meaning your rate will stay the same even if market rates change — for 90 days or longer in anticipation of delays in closing the loan.
Still, no borrower wants to be the reason things take longer than that lock period. If it’s your fault, the lender may try to charge fees or raise the interest rate, and either one could cost you plenty. So here’s what to do to keep your loan on track and stay out of trouble with the lender.
Communicate, then communicate again.
Few refinancings are seamless. Lenders ask for things. “Give the lender everything that they ask for,” said Thuan Nguyen, a mortgage broker in San Jose, Calif. It sounds simple enough, but people will fail to check their voice mail or review email spam folders, given that filters sometimes divert messages about mortgages. Find them, and respond immediately.
“When you send us documents, our algorithm serves up work to team members and causes us to work on your behalf,” said Bill Banfield, executive vice president of capital markets for Quicken Loans, the nation’s largest lender. “And if other people are dragging their feet, you will naturally move ahead.”
Don’t let rate chaos distract you.
The best rates can be hard to come by in the current craziness. HousingWire reported this week that they can be in particularly short supply on comparison sites like Zillow and LendingTree. The nagging sense that something better is out there may lead loan applicants to shop for a better deal while also completing underwriting with the first lender they found.
“You take your eye off the ball and start focusing on the need to do a whole new application,” said Julian Hebron, a San Francisco-based consultant to lenders and fintech companies. “And you pause on submitting all your documentation to the first lender so you can package it up for Lender B. This is the prevailing problem in the current boom.”
Prepare your income explainers.
Over-document everything before you even start the process. Reynaldo Reyes, a mortgage broker in Orange, Calif., said lenders often question income gaps when people have taken parental leaves. So come ready with hospital bills, baby pictures or a note from your employer if you have one.
If you work for yourself and took a long vacation, be prepared to prove it and make your best case for consistent income over time during periods when you were on the job.
Ace the appraisal.
If someone comes to examine your house, that person may not have been in your micro-neighborhood for a while, if ever. Hand over a brief document explaining idiosyncrasies that affect valuations, and make copies of comps that the appraiser may miss. They’re busy.
Check in with your lender or mortgage broker beforehand to ask about the kinds of red flags that can ding your appraisal, whether it’s a lack of proper carbon monoxide detectors or in California, water heaters that are missing the requisite earthquake-resistant straps.
Did you remodel? Prove it with paperwork and before-and-after photos that you put in a single folder with your comps.
Avoid dumb credit moves.
“Don’t open up any new auto loan, credit card or any new credit while this is in process, period,” said Quicken’s Mr. Banfield. “People get very excited about refinancing and suddenly want to go out and buy a new BMW.”
That instinct is natural when money frees up. But lenders often check your credit report more than once during the application process. If there have been inquiries or new debt, they come back to you with questions, which slows things down.
Keep proof that you behaved.
Things may take longer than the lenders say. Much longer. If it’s their fault, they’ll usually extend the rate lock for free, for as long as it takes to close the loan. (Get this in writing before working with one.)
But they don’t really like doing it, and they may have to do a lot of it in the coming months. They may also become more aggressive about charging fees to customers if they caused even a bit of the delay themselves. So keep every shred of proof — text message records, email time-stamps, phone logs — to prove that you were responsive.
“Management’s job here is to try to save money,” said Mr. Hebron, who did time in management himself for Wells Fargo and others. That means pressuring your loan officer to ask you to pay for the extension.
“If a borrower can help a loan officer with that debate and make the case internally, it helps a lot,” Mr. Hebron said.
Refinancing right now? Let me know how it’s going at email@example.com.