Refinancing with mortgage holder not cheap
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By Scott Sheldon  April 11, 2014 12:00 am

Planning to refinance your house? 

Deciding through the advertisements, telephone solicitations, direct mail can mean endless choices. 

Opting to try your mortgage holder? If yes, buyer be aware offers that appear too good to be true. 

 

What to know about 

mortgage holder’s offer

For anyone who has refinanced a home or bought a home since 2008, you know all too well the reality of what it’s like to get a mortgage with the questions and the need to document every aspect of the credit, debt, income and assets.

 

Providing documentation

A common pitch given to consumers is “because your loan is already with us, your loan process will be made much easier.” 

The reality of it is if you refinance your home with your current mortgage holder or even a separate company, you’ll need to provide tax returns, W2s, pay stubs and bank statements. Pre-2014, it was possible to provide lighter documentation for lenders originating and selling loans directly to Fannie Mae and Freddie Mac. 

The game changed Jan. 10, mandating lenders prove a consumer’s ability to repay by having an appropriate debt-to-income ratio as well as providing full supporting financial documentation. 

In other words, because all lenders are going to require the same documentation, it is not necessarily going to be easier with your current lender. 

History of timely repayment on time is not an alternative for documentation. Your current lender does not store your most recent year’s tax returns or last month’s bank statements necessary in consummating a refinance especially if you bank with another financial institution.

 

Appraisal requirement

There is all but two programs presently in place for homeowners wishing to refinance without the need to have a new appraisal completed. An FHA streamline refinance paying off one FHA loan in exchange for a new FHA Loan with a preferred interest rate does not require an appraisal. 

Through the Making Homes Affordable Program, dubbed Harp 2 that specifically states on a case-by-case basis if the loan being paid off was taken at June 1, 2009 and the loan is owned by Fannie Mae or Freddie Mac, a borrower has the possibility of refinancing without an appraisal. 

Otherwise, in a traditional refinance, a home appraisal is required to determine the loan to value and subsequent ability qualify for the mortgage.

 

Decision maker still involved

Usually, the loan package created by your loan officer  is reviewed by the decision maker, an underwriter with the mortgage company whom you’re applying with. The job of the underwriter is to mitigate risk for your mortgage holder i.e. the lender.  

In order to mitigate the possibility of loan risk, they create conditions such as providing updated financial documentation, explaining a deposit in the bank account, for example, and sign off those conditions for a final approval for docs to be drawn. 

Whether you go with the new mortgage company or you stay with your current mortgage holder, refinance request will be handled by an underwriter will sign off your ability to qualify.

Closing fees are on

a level playing field

No lender has a monopoly on the market that is creating an unfair competitive advantage. Both mortgage and insurance industry regulations closing costs rarely fluctuate amongst these neutral third parties. Closing costs vary in terms of what lenders charge in lender fees, origination fees and discount points.

 

Below market rates

Mortgage money comes from the creation of loans created and bought and sold on secondary mortgage markets. 

Lenders have access mostly to the same rates and programs, but fees vary amongst lenders. One lender cannot offer rates dramatically lower than market on the exception of loan program. 

Loan programs change the interest rate dynamic. For example, a 10-year fixed rate is always lower than 30-year fixed rate.

 

When to refinance with 

current mortgage holder

If you have a previous credit challenge, such as a bankruptcy, recently had or are near foreclosure, or there is a major income concern to where a competing lender could not otherwise make you a second offer, then on a case-by-case basis, it may make sense to refinance your loan with your current mortgage holder.

In such a circumstance, however, it would not be a refinance but a loan modification. Another common instance in recent years was procuring a loan modification in lieu of a refinancing because of loan-to-value restrictions. 

Because the real estate market has picked up in Sonoma County and throughout California, refinancing is now a possibility for homeowners who previously were unable to do so due to a lack of home equity.

 

Second opinion matters

Procuring a second opinion from an outside lender against your mortgage holders’ quote is always a prudent route to explore, even more so if you have steady employment, good credit and manageable debts. 

Working with an expert loan professional could make the difference between having a quick, efficient process with reasonable rates and fees versus a process that is not a guarantee due to the mere fact they collect your mortgage payment each month.

 

Scott Sheldon is a local mortgage lender, with over six years of experience helping people purchase and refinance primary residences, second homes and investment properties. Visit him at www.sonomacountymortgages.com.

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