Is It Time To Refinance?

When mortgage rates move lower many homeowners look to refinance their current mortgage. The reason for refinancing varies from one homeowner to the next but most will agree the number one motivating factor are current interest rates.

Reasons to consider a refinance include a lower interest rate, a shorter term (going from a 30 year to a 15 year term), or consolidate a first and second mortgage (including a HELOC). An additional reason is to obtain cash out from the property to improve the home or to payoff consumer debt such as credit cards and car loans.

Here is a simple to follow step by step guide to help you navigate the refinance process.

Step 1 - Be Prepared:

Being prepared is essential, in fact it's a must. 

If you are not prepared you could end up paying a higher rate and more in closings costs. The good news is it doesn't take that long and it's a fairly simple process. The first thing you want to do is determine why you want to refinance and clearly understand your current mortgage rate and term.

Have a clearly defined purposed enables you to determine the best corse of action when it come to getting your quotes and picking a mortgage company to work with. Establish why you want to refinance, the pros and cons of a new loan and lastly review your current loan terms to make sure you can make an accurate comparison with the quotes you receive. You'll want to know what your term is (30 year, 20 or 15 year), the interest rate and what your monthly payment is (without property taxes and insurance).

To complete the process of being prepare you'll want to gather your income documentation. If you are an employee that receives a W-2 then you'll want to grab your two most recent W-2s and your two most recent paystubs. If you are self employed you'll want to grab your two most recent IRS tax returns, all pages (don't leave anything out including any K1's you received).

And if you have a mortgage statement for your current mortgage along with contact information for your homeowner's insurance agent then you are in an even better position to move forward.

Step 2 - Brush Up On The Basic Mortgage Terms:

Knowing some of the basic mortgage terms is incredibly helpful.Things like the "1003" (which is the Loan Application, Loan Estimate, PITI, the difference between Discount Points and Origination Fees, what third party fees are and more. Learning these important key mortgage terms will only take ten - fifteen minutes and it could end up saving you hundreds, possibly thousands, of dollars.

Knowing the difference between a fixed rate term and an adjustable rate term is important because these are two very different loan types. Knowing what a pre-payment penalty is means you'll be able to ask a question to see if you'll have to pay a fee if you payoff your loan early. While most people knows their credit score is important to the refinance process; most don't know that their Debt-To-Income (DTI) ratio is every bit important as well.

Having a clear understanding of these terms puts you in a better situation to navigate the process. It also allows for you to ask the Loan Officer more informed questions (more on this below).

Step 3 - Making The Calls:

Contacting a mortgage professional is the next step. 

The best advice I can give is stay away from companies that have a bad reputation. You can use services like the Better Business Bureau, Zillow or Yelp to research the best companies to use. You can also access the NMLS Consumer site which every reputable mortgage company and Loan Officer is licensed through. If a company has below an B rating at the Better Business Bureau website you may want to look elsewhere. To be safe you may want to stick with the companies that have an A or A+ rating.

Find two to four top rated mortgage Loan Officers and then visit their website to find out a bit more about the company. Check out the Loan Officers that are listed and find one that has at least five years of experience. You may want to spend about five - ten minutes checking out his or her profile and reviews on line.

The number one thing to do when you contact a mortgage company:

It's simple; the answer is ask questions and ask lots of questions. 

Now in Step 2 I mentioned you should brush up on your mortgage terminology and this is where it will payoff. Why is asking questions so important? 

One obvious reason is so that you can better understand the quote and service they are providing. But that's not the reason I'm saying this. You should ask questions to test the Loan Officer and see if he or she is a good candidate to work with.

If the Loan Officer is someone who answers you directly, in depth and doesn't rush you then that's a great person to work with. If on the other hand the person "beats around the bush" or seems irritated that you're asking questions then that's your clue to move on the next company.

Part of the job description for Loan Officers is being willing and able to answer questions about refinancing a mortgage. Someone who is not willing to do this really should not for another job. Don't trust your financial well being to someone who is unwilling to do a basic part of their job.

Step 4 - Picking The Right Company:

There are two things to look for when deciding on which company you'll use; who has the competitive rates/terms and do they provide a high level of customer service. Some people would say just go with the lowest quote but the people who say that are missing an important piece to the puzzle. Anyone can quote a low rate at great terms but can they deliver that at closing? Do they exhibit the professionalism needed to ensure the loan closes as expected and on time.

If a Loan Officer doesn't have the ability to provide a high level of service you are taking a risk with your refinance in that you may be left in the dark, not knowing when you are closing and what the terms of the loan are going to be at closing.