Common Sense Helps Refinancing Go Well

The recent wave of refinance fever has been pretty hard to ignore, and I was not immune to its effects. I wanted to lock in a good fixed rate, instead of the adjustable loan I had. I had this feeling that interest rates were going to start climbing soon, and I also needed some cash for some minor renovation.

Having not attempted something like this before (I had purchased our house from my mother, and assumed title on the loan without having to qualify), and having read plenty of horror stories on the subject, I figured it would be a fun challenge to take on. It was. And by using good common sense, I not only refinanced my loan at a very good rate, I also saved thousands while doing so.

Here are some of the things I did that made the refinance work as well as it did.

Have a good attitude. First of all, I assumed that I was going to succeed at this, and that there would be an army of bankers, escrow people, etc. all working together toward this goal, people I had never met before. I had an attitude that it would be fun, a challenge.

Clean up credit. Before I met with the bank, I contacted the three major credit reporting agencies to get a look at my credit report. I found a few things that were untrue or inaccurate, and had them changed. This took several months, but was probably worth it.

Shop around. I shopped around for the right bank by checking the newspaper for the best rates, both for interest rates and points charged. I called those that seemed most favorable. Many of their rates had changed after publication in the paper, so I had to refine my list slightly.

I realize that a lot of people skip this process and go directly to a mortgage broker, but I felt I would have more control and save money by selecting the banker myself, someone I could deal with directly. It was also very important to me to find a banker who I would work with, who was patient and wouldn’t mind if I called often with questions.

Be prepared. I was fully armed with income tax records, pay stubs, mortgage receipts, etc., for when I met the banker. This meant he could start processing my application immediately. Everything takes time when processing a loan, and in a market where interest could begin rising, time is definitely not on your side.

Get an estimate. This is one of the most important things I did. I got an estimate up front of all costs. I then went over, line by line, each one of these costs, and found out which ones I could eliminate, such as by timing the financing of the loan so that I wouldn’t have to pay two mortgages at once. Then there are such things as title insurance and escrow company that you are not bound to go with, although suggested by the bank. You are free to choose which company you want to represent you in these areas, often at substantial savings.

Become an instant expert. Once my loan papers were in the hands of the banker, I set about finding escrow and title companies. As I knew absolutely nothing about this area, and I had very little time to educate myself, I had to become an expert in a hurry. The approach I used was to ask each company how much “for everything,” and to tell me what “for everything” was.

Using this technique, I was able to compare one company against the next and not sound totally like an idiot. I also asked each company whom they recommended. For example, I asked the escrow company who they liked to work with as far as title insurance companies. In roughly an hour, I found two very competent-sounding companies and exactly cut in half the price that the bank had given me for these services.

Make friends. Staying true to my idea of an army working for me, I made sure that I made friends with all those I came into contact with, which is not only good on a humanitarian level, but can save you money, too. I would ask each person I was working with how I could save money, and frequently they had some good ideas.

Increase the appraised value. This is the key to getting as much cash as possible out. The higher the appraised value, the more cash you can possibly get out. I found out who the appraiser was and contacted him directly. I found out what he was looking for in terms of home value. I got a list of what homes had recently sold for in my area, and drove by those homes. I saw why they sold for what they did.

When the appraiser arrived, I discussed each house I had seen with him, and compared our house with those on the list. In my case, the appraiser hadn’t been able to see each one of those homes listed, and my having seen them was giving him information he didn’t have. Doing all this, I believe I was able to raise the appraised value of my house beyond what it would have been had I not been involved.

Fix what needs to be fixed--fast. Time is not on your side. At one point, I received a copy of the credit report that the bank had run on me. I discovered there were some additional inaccuracies beyond what I had remedied earlier. There were clearly not the months needed to formally correct those items, so I informally called the creditors, explained my problem, and had them fax copies of their adjustments to me, which I then faxed directly to the credit agency. It’s very important to keep abreast of what exactly is going on with your loan at all times. Anticipate the bank’s needs, and remedy them immediately.

When all is done--check it. Fortunately, my loan was approved, I got a fixed loan at a good rate, and was able to get some cash out for renovation. I went over the escrow papers very carefully (I even went to the escrow office with my heavy-duty tape calculator), and actually discovered several mistakes that had been made. These mistakes added up to over $1,000 that they owed me. It’s easy to assume that everything is “in order” just because it’s neatly typed, but I didn’t find this to be the case. Check everything carefully, it could be worth it.

Through a little bit of diligence, gaining some new education and meeting some very fine people, I saved thousands in my refinance, and had our home appraised at a higher level than if I would have “let them handle it.” For me, it was worth it.

Would I do it again? Sure, but let me catch my breath first. . . .

Average Mortage Rates and Indexes

Weekly Survey of 130 Southland Lenders as of Aug. 13, 1992

Latest One Week Six Months week previous previous Conforming mortgage rate 30-year fixed 7.834% 7.934% 8.703% 30-year ARM start rate 4.869% 4.839% 5.198% 15-year fixed 7.483% 7.556% 8.461% Jumbo mortgage rate 30-year fixed 8.148% 8.265% 9.157% 30-year ARM start rate 5.217% 5.265% 5.805% 15-year fixed 7.839% 7.956% 8.965% FHA or VA mortgage average points 1.000 1.000 4.625 CALVET 30-year ARM start rate 8.000% 8.000% 8.000% 11th District cost of funds 5.258% 5.258% 6.245% 6-month LIBOR 3.500% 3.563% 4.313% 1-year treasury bill 3.430% 3.540% 4.190% 6-month treasury bill 3.290% 3.400% 3.940% 6-month cert. of deposit 3.350% 3.440% 4.000% Prime rate 6.000% 6.000% 6.500%

Compiled by Mortgage News Co., Santa Ana