When refinancing a mortgage these days, it seems to be not who you know, but WHAT you know!

 

The days are over when you heard cocktail conversations like: “you have got to call my mortgage broker” or “you cannot believe what my guy just got me!” or “my bank has the lowest rates in town!”

 

No more! In some cases bigger is better and in some cases smaller was better. Now, it is sometimes better to keep what you have and do nothing. The best loan officer is the one that asks you the following five questions right out of the gate:

 

1.    Do you know what your credit score is? A good FICO score is over 740 now. Anything under that might affect the interest rate the bank offers you.

 

2.    What do you think your home is worth and how much is left on your current mortgage principle? Your loan to value needs to be below 80% for sure. Your interest rate gets uglier as your credit score goes down. But even more so, high loan to values will also increase your interest rates to levels of “not worth it”.

 

 

3.    If you currently have a second mortgage, do you want to pay it off or keep it? This is a tricky one. You must disclose this right away because the loan officer needs to calculate the numbers in the beginning. If you got a second mortgage to buy the house originally, than it is considered a mortgage. If you changed the terms of the second or got a new second mortgage or HELOC the day after you bought it, it is considered cash out and might not be doable. If you want to keep the second that you have, the bank will calculate the combined loan to value of the new and existing mortgages to make sure you are under 80% of the value of your home. So, you see, having a second mortgage might knock you right out of the box so fess up!

 

4.    Do you have enough time to do this? It now takes about two months to do a refinance. Between the paperwork and the banks being backed up and not knowing their ass from their elbows, it can be draining! And now, it is expensive to refinance- probably over $1,000 more than it used to be. So, know the fees up front too.

 

 

5.    How much would you need to reduce your monthly payment in order to make this worth the effort? It is not about the interest rate that your dog walker’s cousin got last week, it is about saving dough! If you can lower your monthly payment by 200, 300 or 500 bucks, what difference does the interest rate make! So, don’t get fixated on the rate offered to you, get real on the monthly cash flow.

 

 

You should ask yourself these questions before you even speak to a loan officer. The advertised rates and media hype are not what they are crack up to be. The only people that are getting the lowest rates hawked out there are the stellar borrowers. What was golden a few months ago might be mediocre now. 

 

If you do not qualify for those real low rates they are chatting about, remember two things:

 

·         None of your friends probably are either

·         The rate you have now will be a whole lot lower than what is being offered in next year or two!

 

 Chin up!

 

Dale Siegel