I think it is safe to confirm that we are now in a major refinance boom. We’ve had a few mini booms over the last year, but these were occasions when the rates dropped to a low point, but the low rates only lasted for a short time, in some cases a matter of hours. This boom looks different, much more like the refinance craze in 2003 when rates dropped to a level where nearly anyone who had a mortgage would benefit by refinancing. Mortgage rates are at historic lows, and anyone who can qualify is likely to benefit. But with all this volume coming in to an industry that has been feverishly downsizing over the last year, there are bound to be some problems. While it is great to get the lowest interest rate, it won’t help you if you are not able to close on time, or if you can’t close under the terms you agreed on.

Here are some things to be aware of when you are shopping for a loan and how this refinance may be different than how it has been in the past:

1. The systems are overwhelmed, and the wave is still cresting. Closing a loan is an assembly line like process. It takes a number of steps where everyone has a specific job to perform. Most of your communication will be through your loan officer, but there are many people involved in getting the loan completed: processors, appraisers, underwriters, closers and title agents. If any one of these people have a problem or get behind, it effects the entire loan flow. This means that you need to allow for extra time to close.
2. Because of the loan surge, watch your lock-in time. When you lock in a mortgage, you are locked into your rate for a set period of time. This means that your loan needs to close within that time frame or the promised rate is gone. If some one is quoting you with a short rate lock, take it with a grain (or gallon) of salt. If you don’t fund your loan within the lock period, the lender will either have to extend your rate (Which costs them money) or if the rates have gone up, you will get the higher rate.
3. Check to see when you can lock in your loan. Some companies show great rates, but you can’t lock in until your loan is approved and ready to close. At that time rates will have changed. They might be better, they might be worse. The risk is all on you.
4. The best rate is not always the best deal. You have to look at not only the interest rate, but the costs and the terms. All lenders are getting their pricing from the same sources. If someone is quoting a rate lower than the market, they have to be making up the difference by charging more fees and points (or just making up the rate and hoping the market catches up to where they said they locked you in). Make sure you compare apples to apples. Get a Good Faith Estimate and make sure that any fees will be paid off by the savings on your loan in a reasonable period of time.
5. Underwriting and documentation requirements have changed. Many people who took out their loan more than a year ago, did so with minimal documentation of income and assets. Those days are gone. In order to qualify for a loan you will need to prove that you can afford the loan. This means providing paystubs, W2s and bank statements.
6. There are more loan level adjustments depending on your situation. Mortgages used to be a one size fits all commodity. Now there are extra pricing hits depending on your credit score, your loan to value, the type of mortgage you are getting and the type of property. So each loan quote is specific to your situation.
7. Home values have dropped. If you bought your home over the last few years, this could be an issue. Part of the loan process is getting a current appraisal on your property. The real estate market has been slow, and the homes that have sold are those that had to sell, often distressed properties. These are the comparable properties that will be used to determine your current market value. Your house will need to appraise out in order to get a new loan, so some of the people who could benefit most may not be able to.

These low refinance rates are going to help a lot of people lower their rates, in some cases by a lot. But it will be different this time. With the volume as high as it is, things will take longer and don’t be surprised if some mistakes or mishaps happen along the way. It’s a fact of life that things don’t go quite as smoothly when the volume spikes. You can help our process by getting your documents together quickly, and being available for meeting the appraiser and flexible with times. 

If you would like a loan quote, or if I can help in any way, give me a call or send me an email.

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