1. Refinancing with your existing lender without shopping around. Your existing lender may not have the best rates, fees, and programs. There is a general misconception that it is easier to work with your current mortgage company. Most likely, your current mortgage company will require the same documentation as other companies. This is because most loans are sold on the secondary market and have to be approved independently. So even if you have been very good at making payments to your existing lender, they will still have to do their paperwork all over again.
2. Not doing a break-even analysis. Find out what the total cost of the refinance is, then figure out how much you will save every month. Divide the total cost by the monthly savings to get the number of months you will have to stay in the property to break even on your refinancing costs. Example: if your refinance costs $2000 and you save $50/month, your break-even is 2000/50 = 40 months. You are best off refinancing if you plan to stay in the house for at least 40 months. Note: The break-even analysis only works if you are refinancing to save money. If you are refinancing to switch from an adjustable to a fixed loan, or from a 30-year loan to a 15-year loan, it is much more difficult to perform a break-even analysis (you are comparing apples to oranges).
3. Not getting a written good-faith estimate (GFE) of closing costs, or a Truth-in-Lending (TIL) Statement. Your mortgage company is required to provide you with a written GFE of closing costs, and a TIL, within 3 working days of receiving the application.
4. Paying for an appraisal when you think that the house may appraise too low. Ask your loan officer to check with the appraiser to provide you with a range of possible values. Barrister Properties can ask their appraiser to do this for you. Do not waste your money on a full appraisal if you are doubtful about the value of your house.
5. Using the county tax-assessors' value as the market value of your house (assessed value is much different then appraised value). Mortgage companies do not use the county tax-assessors' value to determine whether they will make the loan (except on some second mortgages). Instead they use a market-value appraisal that may be very different from assessed value.
6. Signing your loan documents without reviewing them. Do not sign documents in a hurry. Especially review the HUD-1-Settlement costs statement with your loan officer ahead of time if possible. This way you can review them and get your questions answered. Do not expect to read all the documents during the closing. There is rarely enough time to do that.
7. Not providing documents to your mortgage company in a timely manner. When Barrister Properties asks you for additional paperwork, jump on it! Do not complain, sometime the loan officer doesn't even know the reason why. They are trying to get you approved, not trying to hassle you unnecessarily! Do the new requirement right away don't hesitate. You run the risk of paying higher rates if the rate lock expires.
8. Not getting a rate locked in writing. When Barrister Properties tells you they have locked your rate ask to get a letter which details the interest rate, the length of the rate lock, and details about the program.
9. Taking cash out of your credit line before you refinance your first mortgage. Many lenders have "cash-out" seasoning requirements. This means that if you pull cash out of your credit line for anything other than home improvements, within a year of your refinance, they will consider the refinance to be a "cash-out" refinance. This leads to much stricter requirements, usually a higher rate, and in some cases break the deal!
10 Taking out a second mortgage before you refinance your first mortgage. Most mortgage companies look at the combined loan amounts (i.e. the first loan plus the second) even when they are refinancing the first mortgage. If you plan on refinancing your first, check with us, we have an alternative company if the original one would turn you down.
Your new home is most likely your biggest investment you will ever make. The home-purchase process is extremely confusing for most people. There is no substitute for taking the time to educate yourself before you buy a house.