Mortgage Re-Finance

Every email you receive states:-  "Refinance your mortgage today! Save thousands of $$ No hidden costs, just great rates! Zero: That's your cost for refinancing!"

In recent months, a growing number of mortgage lenders and brokers have been hawking "no-cost" mortgages, in which the lender picks up the expenses that normally would be paid by the borrower.

And they're popular. Many borrowers see the mortgages as a convenient way to take advantage of falling interest rates while keeping more cash in their bank accounts. The pitch sounds great. Borrowers who get approved for these mortgages can avoid paying an assortment of fees, including legal, appraisal and origination, associated with a mortgage. For a $100,000 mortgage, such costs can range from $3,000 to $5,000.

But that's not the whole picture: Lenders who offer no-cost mortgages often make up for the lost fee income by charging higher interest rates.

For instance, Countrywide, one of the largest mortgage lenders in the country, adds three-quarters of a percentage point to its no-cost mortgages. Instead of paying 7 percent on a 30-year, fixed-rate mortgage, a borrower would pay 7.75 percent. That adds up to $18,400 in higher interest payments over the life of a 30-year $100,000 mortgage.

"You can do the math," said Chuck Small, a financial adviser with ACH Investment Group, an investment advisory firm in Raleigh, N.C. "You'll be paying thousands of dollars more over the life of a mortgage."

Still, no-cost mortgages make sense for borrowers who don't plan to stay in their homes for longer than four years, said Gordon Miller, president and founder of DNJ Mortgage, a firm that specializes in no-cost mortgages.

For instance, a borrower who gets a $100,000 mortgage at a 7 percent annual interest rate will save $51.11 a month in interest payments compared with someone who gets the same mortgage (without fees) at 7.75 percent. That, in monthly savings, is attractive; but it would take 39 months, more than three years, to recoup $2,000 in fees associated with the conventional mortgage.

"For some people, especially those that are worried about losing their jobs, three years is an eternity," said Miller, who began doing no-cost loans 14 years ago. "They would rather keep more cash in their bank account and pay slightly higher (interest payments)."

For people who already own a house, the no-cost option eliminates the fees associated with refinancing, in which one mortgage is replaced by another with a lower interest rate.

Since July of 2000, mortgage rates have fallen more than a full percentage point, from 8.26 percent to 6.96 percent, on a 30-year, fixed-rate mortgage, according to Bankrate.com of North Palm Beach, Fla., which surveys the nation's largest lenders each week. Many homeowners want to take advantage of those falling rates without paying thousands of dollars in fees each time they refinance.

"Theoretically, with a no-cost mortgage, you could refinance every time rates fall no matter how small the reduction (in interest rates)," said Randolph Straughan, a loan officer with First Financial, a Charlotte, N.C., mortgage broker.

The growing popularity of no-cost mortgages is a major reason that Americans are on pace to refinance $1.07 trillion in mortgages this year -- a record, according to the Mortgage Bankers Association in Washington.

But borrowers should watch out for scams. Often, the companies who promise to waive fees for mortgages are really just rolling those fees into the cost of the mortgage, ACH Investment Group's Small said. The borrower may not realize this until closing, when he or she discovers that a 100,000 mortgage has increased to 103,000.

A borrower who doesn't read the fine print can end up paying interest on those extra dollars over the full life of the mortgage.

"Just remember," said Small, "that mortgage lenders aren't in this business for charity."

Source - Financialone

The Mortgage Process

What happens after you apply?

The time it takes to complete the loan process varies for each application. Here is a list of stages required to process a mortgage. Remember that completing your application accurately and fully will help speed the process.

Processing

After you apply, a loan processor will collect documents and verification to support your request for a loan. The time in processing will vary depending on the type of loan and how quickly the processor receives the documents needed. Much of processing involves help from other sources, such as:

1. Appraisal - An appraiser will judge the value of the property, generally based on the recent sales in your market.
2. Credit Verification - We’ll request a credit report through a credit reporting agency to verify your outstanding debts and payment history.
3. Income Verification - In addition to the documents we request from you, we’ll ask your employer to verify your income.
4. Asset Verification - To confirm that you have sufficient funds required to close on your mortgage.
5. Previous Housing Verification - We’ll request the history of your rent or mortgage payments from your lender or landlord.

Underwriting

Once the application is processed, your processor will submit the complete package for review. The underwriter compares your loan request to the guidelines of the lender or its investors for the type of loan. Then the underwriter issues a decision on your app lication based on established investor guidelines.

Closing

Closing occurs when you sign the papers for your mortgage loan, and when the property is transferred, if your loan is for a home purchase. Most closings take place at a title company or real estate office, but the location procedures vary by state.

What you need to bring to application?

Mortgage application checklist – Information required at application

Income

1. Signed copy of agreement of sale or copy of deed – if refinance
2. Current pay stub and W2’s for two years
3. Names and addresses of employers for past two years
4. Details of all other continuing income sources

Assets

Names, addresses, account numbers and balances for:

1. Checking accounts
2. IRA’s 401 and Keogh
3. Savings accounts
4. Credit union
5. Investment and stock accounts
6. Gifts – complete details on all monetary gifts

Debts

Names, addresses, account numbers and balances for:

1. Charge accounts
2. Personal loans
3. Auto loans
4. Alimony and child support payment
5. Student loans
6. Current mortgages

Self-employed borrowers

Additional information required for commissioned or self-employed persons Note: A borrower who has an ownership interest of 25% or more in a business is considered to be self – employed.

1. Signed copies of last two years federal tax returns (1040’s) – with all schedules
2. Copy of partnership return for two years (if applicable)
3. Most recent profit and loss statement (no more than 120 days old).
4. Current balancesheet.

Back

Refinancing Checklist

Check-off the corresponding box as you acquire (if needed) the necessary documentation.

1. A copy of the deed and your current title policy must be provided to the lender either at application or as soon as possible thereafter.
2. If you are receiving any cash from the refinance, the lender will require a letter stating the purpose for the cash out refinance. This letter is required prior to loan approval.
3. If you are refinancing to lower your monthly payment, shorten your mortgage term or obtain other financing ONLY, you are not permitted to receive any cash at settlement. Any monies in excess of that needed to complete closing of your loan must be returned to the lender. The lender will apply these funds to your unpaid balance, thereby reducing the total amount due.
4. You must request, in writing, to the Payoff Department of your current mortgage holder, a payoff statement which should also include a per diem factor (daily interest rate). We must have the original copy of the payoff statement one week prior to settlement.
5. Unless you have signed the Title Authorization for the lender to obtain your title insurance, you must call your present title company or any other at your option to order a new title report. We must have a copy of the title commitment/binder atleast one week prior to settlement.
6. You must provide documentation as required by the title company to remove any exceptions on the title insurance commitment/policy relates to boundary lines, or other matters that would be cleared by a current survey. Contact your title company immediately to determine what documentation they would accept. You may be required to provide a current survey.
7. Evidence of paid property and/or school taxes will be required by the title company. Please contact your title company to determine the exact documentation required by them. This information may be obtained from your current mortgage holder or your country/municipal tax department.
8. You may be required to obtain a termite certification on your home, we will advise you accordingly. If required, this certification must be no older than 30 days prior to the date of settlement and the original certification must be provided to us atleast one week prior to settlement.
9. You may be required to have a well and/or septic certification completed on your system, we will advise you accordingly. If required, the original certification must be provided to the lender atleast one week prior to settlement.
10. You must obtain a one year (1 year) paid policy for hazard insurance with the lender, its successors and/or assigns, listed as the loss payee. The insurance coverage should be atleast the amount of the mortgage. The original policy plus the paid receipt must be provided to us at least one week prior to settlement.
11. Points paid on your mortgage may not be fully deductible for the current tax year and may be required to be deducted over the term of the loan. Consult your accountant or the IRS for specific requirements and deductibility of points.
12. A rescission period of three (3) business days follows settlement. During this period, you will not receive your settlement monies and may cancel at any time without adverse consequences.

Useful mortgage refinance loan links