Mar 12, 2009 10:47 am US/Eastern
Angie's List: Mortgage Refinancing
PHILADELPHIA (CBS 3) ―
The housing market is still struggling but despite the tough economy, many
homeowners can cash in on big savings by refinancing their homes.
That's right, interest rates have dropped significantly. But to take
advantage you need to make sure you're a good candidate.
In this week's Angie's List report, Jim Donovan shows you what you need to
know before you refinance your mortgage.
When it comes to getting a loan your credit history is key.
"If you're considering refinancing your home the first thing you need to do
is get your credit in order. Check your credit report, make sure you have a
history of paying your mortgage in time, and you have equity in your home," said
Angie's List founder, Angie Hicks.
And be aware, you may have to shell out some cash before you start saving. So
make sure you look carefully at all the costs associated with refinancing.
"Homeowners need to keep in mind refinancing is not free, there are going to
be fees associated with it so you need to be sure you're going to live in the
house long enough to recoup those fees, but if that is the case you can save a
lot of money. I talked to one Angie's List member the other day who just
refinanced and is saving $500 a month on her mortgage," said Hicks.
10 tips for homeowners to consider before they begin the refinancing
process:
1.) Check your credit: Lending guidelines have tightened up, making
borrowing much more difficult for people with low credit scores. Before you
refinance, pull your credit report and double check that the information is
accurate and up-to-date. If there are any discrepancies, work with the credit
reporting agency to have those cleared up before you inquire about a loan. While
credit scores where once a contributing factor in determining the cost of
credit, they have now become the overriding factor.
2.) Determine your home's value - You now need more equity in your
home in order to refinance. Expect the lender to request an appraisal.
3.) Don't wait for a better deal - By holding out in the hopes rates
will go down further, you risk your home depreciating more or your financial
situation worsening. Lenders soon expect a backlog of applications, so you also
run the risk that the rate you locked in will expire because your lender can't
close the loan on time. Look for a lender who is willing to lock in a rate for
at least 60 days.
4.) Get quotes in writing - Email is fine, but be sure your mortgage
consultant gives you rate information in writing so you're not surprised by a
rate change when you go to close.
5.) Borrow more? - If you have the equity in your home and it makes
good financial sense to do so, consider borrowing additional money against your
refinanced mortgage to pay off higher interest debt. This could save you
substantially over the life of the loan, plus the interest you pay on your
mortgage is tax deductible, which is not the case on auto loans and other
credit-based interest you pay. Again, consult with your mortgage professional to
determine if this is best for you.
6.) Research your lender - Use an independent mortgage consultant, who
can get multiple rate quotes with one credit pull. Check Angie's List to read
other consumer reviews of local mortgage professionals. Visit the local
Secretary of State website to learn more about that broker's credentials.
7.) Disclose all sources of income - If you rely on cash income from
tips, etc., it's important you account for all of that income to better your
chances of qualifying for a loan.
8.) Ask for closing cost guarantee - Beware of any lender that will
not give you a written guarantee on the closing costs they estimate. Your costs
could end up coming in a lot higher than initially disclosed. If costs do
change, ask your mortgage professional for an explanation before you agree to
anything. Include closing costs into your loan to avoid paying out of
pocket.
9.) Eliminate PMI? - Private mortgage insurance is required whenever a
conventional loan exceeds 80 percent of the value of the home. You can eliminate PMI if your home has at least 20 percent
equity, based on a current appraisal. You can avoid paying PMI on a new loan by
making up the difference at closing or by taking out a second mortgage for the
difference.
10.) Know your rights - Customers are entitled to a three-day grace
period during which they can pull out of a deal. The lender must be notified in
writing of the rescission within three days of the date of closing and has 20
days to return the customer's fees.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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