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| The Basics | 7 secrets to refinancing on the fast track
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Your speed and skill in playing the refinancing game can save you money by winning you a lower interest rate. Learn how to push your application to the top of the pile.
By Liz Pulliam Weston
He who hesitates is lost -- or at least sometimes stuck with a higher interest rate.
Thats the lesson thousands of people learned back in mid-March of 2003 when interest rates dropped to 40-year lows. A record number of mortgage applications flooded the nations lenders, jamming phone lines and overwhelming loan officers.
Then rates suddenly popped back up by nearly half a percentage point. Those who didnt beat the crush found themselves facing higher payments than theyd planned.
A lot of consumers learned the hard way, said Doug Perry, first vice president for Countrywide Home Loans, that rates drop slowly but rise very quickly.
There are other reasons to move fast once you start the refinancing process. For one, you risk a drop in your credit score the longer you dally. Every time you apply for credit, your credit score -- the three-digit number used by lenders to evaluate your creditworthiness -- can go down.
Fortunately, the credit scoring system most lenders use, FICO, doesnt punish you if you do your mortgage shopping in a relatively condensed period of time. All credit inquiries made within 14 days are lumped together as one, and your score doesnt reflect any inquiries made within the last 30 days.
The problem, of course, is that just when youre ready to make your move, a lot of other people probably are, too. The lower the interest rates, the more competition youll face trying to get lenders time and attention as applications tax their systems to the limit.
Here are some strategies to help push your refi application to the top of the pile.
Do your footwork ahead of time
You should understand the basics of how refinancing works and what various terms mean before you apply. There are primers on this site and elsewhere that walk you through the process.
You should also know what the prevailing rates are (check out the Bankrate.com link at left under Related Sites) and whether you want to pay points to buy down your rate to a lower level. Get quotes from several lenders that include their rates, points and fees. Once you have that information, decide whether you want a fixed-rate loan, an adjustable or a hybrid (which remains fixed for three to seven years before becoming adjustable). If you decide on a fixed-rate, determine whether you want a 15-, 20-, 25- or 30-year loan. (The shorter the loan, the faster you build equity and the less overall interest you pay.)
Once youve done that footwork, youll be ready to pounce.
Dont try to hit the absolute bottom
For one thing, its impossible. Nobody knows in advance how low interest rates might go, or when theyll start to climb. Rather than drive yourself crazy trying to predict the unpredictable, find the best deal you can and lock it in.
Besides, stalling your lender while you wait for rates to fall is usually counterproductive. Not only might rates rise instead, but your lender may decide your indecision is a sign that youre not really serious about refinancing -- which could drop your application back to the bottom of the pile.
Ask about shortcuts
Lenders have an incentive to speed up the process. After all, they dont get paid if you dont get your loan. So ask your current and prospective lenders if they have any programs to get you to the finish line quicker. Among the possibilities:- Loan modification. These programs basically lower the rate on your existing loan without changing the length of the loan. Loan modifications arent available to most borrowers, since their loans have already been sold on the secondary market and cant be changed. But it never hurts to ask your current lender if such a program is available.
- Streamlining. Some lenders offer a quick refinancing for current customers. You typically pay a slightly higher rate for the convenience and speed.
- Reduced paperwork. Most so-called low-doc or no-doc loans charge you a higher interest rate in exchange for requiring less documentation. Some lenders, however, have fast-track programs that eliminate some steps -- such as income and asset verification -- for customers with excellent credit. This speeds up the process without resulting in a higher interest rate.
Use the Internet
Most people use the Internet to shop for rates but pick up the phone once theyre ready to apply. Starting your application on the Web, however, can help you bypass the traffic jams at the call center.
People who called Bank of America during Marchs rush faced waits that exceeded 30 minutes. Those who applied online, however, got the process started immediately -- and were assigned a loan officer who could be reached by phone directly, circumventing the line.
Use a broker
If you have troubled credit, an unusual financial situation or are just overwhelmed by the process, it can pay to have an advocate who knows the system to help you sort through your options. Thats the role a good mortgage broker can play.
When mortgage applications soar, though, mortgage brokers can really earn their commissions.
Brokers do business with many different lenders and often have an inside track that can help speed up the process, said Don Petrasek, a former broker and real estate agent who authored a guide called The Educated Home Buyer.
Mortgage brokers tend to be more entrepreneurial, Petrasek said. When theres a large volume [of loan applications], the mortgage brokers are more inclined to figure out how to get them done.
To find one, ask your friends and neighbors for a referral or visit the National Association of Mortgage Brokers (see link at left under Related Sites).
Have your paperwork ready
Heres what most lenders will ask for:- Pay stubs for the last month
- Your most recent W-2 forms
- Last years tax return (or tax returns for the past two years if self-employed or employed at your current job for less than 2 years)
- Bank and brokerage statements for the last month
- Mortgage statement
- Statements for any home equity loans or lines of credit
- Homeowners insurance statement
Smart borrowers, however, will provide even more information, particularly if theyre self-employed, havent worked for the same employer for two years or have any kinks in their finances.
Instead of one years worth of tax returns, Petrasek said, provide 1040s for two or three years, as well as pay stubs for two months and statements from your 401(k) and other retirement accounts.
What that does is provide the underwriters with the information they might need so they dont have to come back and ask for it -- leading to more delays, he said.
Follow up and follow through
Fax, overnight or hand-carry to the lender any paperwork thats requested. Dont wait for snail mail, and, by all means, dont put off responding to requests for more information. Even short delays will send the wrong message.
If you dont return those documents for a week, Perry said, that conveys to the lender youre not as excited about this loan as somebody who gets their documents back the next day.
Keep the heat on by calling or emailing your loan officer or broker every few days until your loan is approved. Be polite and friendly, but make it clear you want the process to go as quickly as possible.
You dont want to call every day, because they might start ignoring your calls, Petrasek said. But you dont want to be silent, because its the squeaky wheel that gets the oil.
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