10 Hidden Details You Must Know if You Are Considering a Refinance Right Now

There has been a deafening buzz about low rates and refinancing lately. The phones are ringing off the hook and loan applications are up 124% according to the MBA.

Jubilation has been felt by those who have decided to hunker down and ride out the mortgage industry. This has been the sign many have been waiting for that they were right for sticking it out when 70% of the competition has left for other careers.

Once again, there are many factors that the media are not covering that are very important to be aware of when considering whether a refinance makes sense or if it is even possible. What follows is a quick heads up on many of these factors. If you are not hearing about them from your lender, you might want to ask and/or get a second opinion, which we'd be more than happy to provide.

10 Hidden Details You Must Know if You Are Considering a Refinance Right Now

1. The lowest rate quotes are usually on 15 day lock periods. The time needed to get an appraisal, title work, processing, underwriting, closing and funding normally takes 21 to 30 days. Overload at big players are making loans take 45+ days to complete. So this is all but a fallacy.
2. Appraised values and comp checks are coming back very low. This refinance wave is forcing a number of home owners still in denial about drops in value to have a brutal reality check. 42% of homes in the US are upside down right now, meaning the debt on the home is greater than the value. Due to the drop in value and equity, many will now need private mortgage insurance, eating up the savings of a rate drop. This reality check is expected to bring about a new wave of defaults as people lose hope.
3. Tangible Net Benefit Requirement in MN. The State of Minnesota has a requirement that there must be a tangible net benefit to refinancing. This is a good thing as it is keeping many unnecessary loans from closing.
4. Get the whole quote. Cost and timing are every bit as important as rate. As stated earlier, rate lock periods and the cost associated with extensions and re-locks for missed closings can make all the difference. Make sure you are getting a rate quote for a realistic time period. Also ask about the "break even" point on a refinance. That is the monthly savings divided into the cost to refinance. The number of months it takes needs to be less than the time you expect to remain in the home.
5. Big Banks offering the best rates can't handle the volume. A source at Wells Fargo told me that they are so short staffed right now that they have an average of 1500 people on hold for rate quotes at a time. They are letting anyone who has time take the calls. This loan originator had 49 loans in process at once as a team of one. They typical loan originator without a team can handle 4 to 8 loans a month. The fallout from missed rate locks will be enormous. Work with a lender that has the capacity to handle your loan and deliver an on-time, stress free closing.
6. When the lowest rate hits, it is too late to begin. There are two dates in recent memory where I can recall a low in rates being hit. One was in January 2008, when 30 year fixed rates hit 5.375%. The entire country was trying to lock in. Computers jammed from the overload and by the time they unjammed, rates had come back up to 5.75%. The second was a week and a half ago when it hit 4.75%. Two hours later, traders were taking profits and the rate was back above 5%. The following several days, the media was bust creating false expectations by talking about what had happened on that one day. If you are interested in refinancing, get started now and give your loan officer marching orders on what you want and permission to get it for you if it happens. We are providing this service at the Adopt My Mortgage, mortgage management page on www.themortgagescoop.com.
7. Paying points can help but may not be right for everyone. Paying points and staying with the same loan for many years can have a defined and consistent return on investment. But that is also placing a speculative bet on the fact that rates will never be lower. In a previous post on this blog, I talked about the return on investment a client earned by buying his rate down. At that time, no one knew we would see rates get to where they are today. For that person to refinance now would be throwing those buydown costs away and in retrospect, they were unnecessary. Having said that, how much lower can rates go? I don't have an answer to that. But most say rates will stay low for a while and then rise as we come out of this crisis never to get this low again. So to place that bet now might be a winning strategy.
8. FHA Streamline requires no appraisal, no income or asset verification and no credit report. One of the most successful refinance options right now is only available to people already in an FHA loan. The FHA Streamline is very simple. If your rate is going down, you are approved! Also, since rates are expected to be higher in the future and FHA loans can be assumable, this might be a great strategy to sell in the future.
9. Private Mortgage Insurance is not currently available for cash out transactions or investment properties. Any loan for more than 80% of a property's appraised value requires mortgage insurance. A loan that results in more than $2000 in cash back or if it is combining a second mortgage or equity line (that was not used to buy or improve the home) into a new first mortgage is considered cash out. Since Minnesota is still considered by the mortgage insurance companies to be a "declining value marketplace," there is no private mortgage insurance available at this time. FHA is available for cash out loans over 80% in Minnesota, but with a maximum loan of $318,000 as of 1/1/09.
10. FHA Secure is over 12/31/2008. This was a program introduced by the Bush Administration that allowed a new FHA mortgage even if a 2nd mortgage on the property made the debt total more than the value. This was helpful for ARMs that were resetting or Balloon loans that were due. The program ends 12/31/09. But loans that have an "FHA case number" before the end of '08 can still utilize the option if approved. Translation - you have the first 2 days of next week to act if this applies to you. GO!

I hope this is helpful. Call me with questions. We are here to help!

By Ronny Loew - Ronny is the Next Home Specialist with MN Home Loan Partners. Whether you are moving up, downsizing, relocating, keeping your home as an investment to buy a new primary residence or refinancing, Ronny has specific strategies to make it easy and a financial win. He can be reached at 952-808-2815 or rloew@houseloan.com