Here’s What Not to Do When Refinancing

Are you considering a refinance for your current mortgage? Then you need to be sure that you understand the mistakes that you need to avoid before you refinance your mortgage with any lender.

Here’s what NOT to do when refinancing your mortgage:

Not checking out all of your refinancing options - Before you decide to refinance, you have to shop around and learn what your options are. You don't want to make the mistake of not shopping around and simply staying with your current lender. This can lead to the wrong refinancing option for you in particular. Shopping around will help you ensure that you are definitely getting the best deal possible for your needs.

Signing any loan documents without first carefully reading over them – It’s wise to review every document for refinancing before you close the deal. Otherwise, you will easily find that there was some essential information that was missed.

Not understanding what your break-even point will be for refinancing - Are you aware of how much time you will need to recoup from the upfront transaction costs? You need to know when you will break even and even when you will start getting ahead so you can make sure that you are not going to be in trouble with your mortgage if the break-even point is too far into your future. 

Not providing the mortgage company with the refinance documents on time - If your lending institution is requesting that you provide them with additional documentation like verification of employment or income and expense statements, then you have to be sure that you get them to them right away. Delaying in providing these can lead to costly delays that you could have avoided if you had just gotten them in on time. 

Not having the estimate of your mortgage refinance put down on paper - Lenders and brokers are required by law to give you a written statement for the fees will be for refinancing. You want to get this so you can have it with you at the closing to ensure you get the deal that you agreed to.

Ignoring your credit history-The most common mistake that homeowners make is ignoring their credit history. You should be aware of your exact credit history before refinancing. Many people do not know whether some mistakes were made on their credit reports and ends up taking high interest rates. This high loan and credit fees ends up disqualifying them from mortgages or even missing their chance of buying new homes or refinancing. The best way to avoid this is to always know your credit score as well. Also, check your credit report regularly to make sure there are no mistakes.

Minor Oversights That Can Land You In an Undesirable Mortgage

If you are not an all cash buyer, you will definitely need to get a home loan. The home loan application process can be both stressful and time consuming. A minor oversight can lead to big headaches in the future. So take your own sweet time to review your loan documents.

Do your research

Do your research to keep yourself informed about the process. You should be crystal clear about the terms and conditions before signing the loan document. If you come across terms that you do not understand, ask about them. Don't assume that things will work out fine. They probably won't. This doesn't mean that your lender is trying to cheat you. They aren't, but you might assume that your mortgage will work in a certain way. And when you later discover that your assumptions were wrong, you will be in for an unpleasant surprise.

An inability to understand the terms specified in the loan document will land you in trouble. Some mortgages, for example, come with prepayment penalties. These penalties limit the repayment options you have. If the mortgage comes with a prepayment penalty, you will have to pay additional fees if you pay off the loan in 1- 3 years. Now that interest rates are pretty low, you will definitely not want to choose a mortgage with a prepayment penalty.

Here is a glossary of terms you might come across in your document.

Amortization

The word amortization is used to refer to the process of reducing an amount of money owed by making regular payments. During the initial years of your mortgage, the major chunk of your monthly payments goes towards the interest. Towards the end of the term, you pay more principal and less interest.

Comparables

The term comparables refers to comparable properties in your area. While appraising your home, an appraiser will consider the price at which similar homes in the locality were sold.

Escrow

Every month, a certain percentage of your mortgage payments goes to your Escrow account. Escrow will hold this amount to pay your yearly bills such as mortgage insurance, property tax, and homeowner's insurance.

Federal Housing Administration (FHA)

FHA is a US government agency. It sets the mortgage underwriting standards and insures home loans made by banks and private lenders. FHA loans make homes more affordable because they allow people to borrow with less equity or lower down payment.

Lien

The word lien means that somebody has a legal right to somebody else's property. The mortgage is a kind of lien. It gives the lender the right to seize the borrower's property if terms specified in the mortgage are not met.

These are some of the terms you will come across during your home loan application process. There are several others, too. Here is a quick overview of some missteps you must not make.

Your credit score determines your chances of getting a loan, so review it frequently. Avoid opening any new line of credit as it may affect your score. Do not change jobs in the months before applying for a home loan. If you must change jobs, wait until you get the sanction letter.