Top 10 Mistakes When Refinancing Your Home
1. Refinancing with Your Existing Lender Without Shopping Around. Your existing lender may not
have the best rates and programs. There is a general misconception that it is easier to work with
your current lender. In most cases, your current lender will require the same documentation as
other companies. This is because most loans must conform to secondary market guidelines, and
have to be approved independently. Even if you have made all your mortgage payments on time,
your existing lender will still have to verify your income, assets, liabilities, and current property
value, all over again.
2. Not Doing a Break Even Analysis. Determine the total cost of the transaction, then calculate how
much you will save every month. Divide the total cost by the monthly savings to find the number of
months you will have to stay in the property to break even. For Example: if your transaction costs
$2000 and you save $50/month, you break even in 2000/50 = 40 months. In this case you'd
refinance if you planned to stay in your home for at least 40 months.
Note: This is a simplified break-even analysis. If you are refinancing to switch from an adjustable
to a fixed loan, or from a 30-year loan to a 15-year loan, the analysis becomes much more
complex. See AmeriStar's Break Even Analysis Tool for more help.
3. Not Receiving a Good Faith Estimate. Within three business days after your mortgage broker
receives your loan application, you must receive a written statement of fees associated with the
transaction. This is both the law and the best way to determine what you'll pay for your loan. Bring
the Good Faith Estimate (GFE) with you when you sign final loan documents at settlement. And
while you should not be expected to pay fees which are substantially different from those contained
in your GFE, remember that your mortgage broker is estimating many of the fees that are actually
charged by other service providers necessary to your transaction. In short, your mortgage broker
will try to estimate everyone's fees as closely as possible, but it's impossible for every estimate to
be exact.
4. Paying for an Appraisal When You Think Your Home Value May be Too Low. If you think the
value of your property may not be high enough to facilitate the refinance transaction, ask your
AmeriStar Loan Officer to have our appraiser prepare a desk review appraisal (typically at no
charge) to provide you with a range of possible values. This way you don't waste your money on a
full appraisal if you are doubtful about the value of your home.
5. Using the County Tax Assessor's Value as the Market Value of Your Home. Mortgage
companies do not use the County Tax Assessor's value to determine whether they will make the
loan. They use a market-value appraisal which may be very different from the assessed value. This
difference is because the marketplace is a more current indicator of value than the County
Tax-Assessor's office, which may only review values every other year.
6. Signing Documents Without Reading Them. Whenever possible, review in advance the
documents you'll be signing. Even though some specifics of your transaction may not be known
early in the transaction, the documents you'll sign are standard forms and are available for review.
It's unlikely that you'll have sufficient time to read all the documents during the closing
appointment. For example, at AmeriStar, we send you your Loan Application documents to review
in the comfort of your home, at your own pace.
7. Not Providing Documents to your Mortgage Broker in a Timely Manner. When your mortgage
broker asks you for additional documents, provide them immediately. They are doing what's
necessary to get your loan approved and closed as promptly as possible. And that's in your best
interests. Otherwise you may be paying a higher rate on your current loan longer than necessary.
The bottom line is: Delays in providing documents can result in costly delays in getting your
transaction to settlement.
8. Not Getting a Rate Lock in Writing. When a mortgage company tells you they have locked your
rate, get a written statement which includes the interest rate, the length of the rate lock and details
about the program.
9. Pulling Cash Out of Your Existing Credit Line Just Before You Refinance Your 1st Mortgage.
Many lenders have cash-out seasoning requirements. This means that if you pull cash out of your
credit line for anything other than home improvements, they will consider the refinance to be a
cash-out transaction. This usually results in stricter requirements and can, in some cases, break
the deal! Please feel free to consult with your AmeriStar Loan Officer if you have any questions
about this.
10. Getting a 2nd Mortgage Before You Refinance Your 1st Mortgage. Many mortgage
companies look at the combined loan amounts (i.e. the 1st mortgage balance plus the 2nd
mortgage balance) when refinancing the 1st mortgage. If you plan on refinancing, check with your
mortgage company to find out if getting a second will cause your refinance transaction to be turned
down.
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1. Refinancing with Your Existing Lender Without Shopping Around. Your existing lender may not
have the best rates and programs. There is a general misconception that it is easier to work with
your current lender. In most cases, your current lender will require the same documentation as
other companies. This is because most loans must conform to secondary market guidelines, and
have to be approved independently. Even if you have made all your mortgage payments on time,
your existing lender will still have to verify your income, assets, liabilities, and current property
value, all over again.
2. Not Doing a Break Even Analysis. Determine the total cost of the transaction, then calculate how
much you will save every month. Divide the total cost by the monthly savings to find the number of
months you will have to stay in the property to break even. For Example: if your transaction costs
$2000 and you save $50/month, you break even in 2000/50 = 40 months. In this case you'd
refinance if you planned to stay in your home for at least 40 months.
Note: This is a simplified break-even analysis. If you are refinancing to switch from an adjustable
to a fixed loan, or from a 30-year loan to a 15-year loan, the analysis becomes much more
complex. See AmeriStar's Break Even Analysis Tool for more help.
3. Not Receiving a Good Faith Estimate. Within three business days after your mortgage broker
receives your loan application, you must receive a written statement of fees associated with the
transaction. This is both the law and the best way to determine what you'll pay for your loan. Bring
the Good Faith Estimate (GFE) with you when you sign final loan documents at settlement. And
while you should not be expected to pay fees which are substantially different from those contained
in your GFE, remember that your mortgage broker is estimating many of the fees that are actually
charged by other service providers necessary to your transaction. In short, your mortgage broker
will try to estimate everyone's fees as closely as possible, but it's impossible for every estimate to
be exact.
4. Paying for an Appraisal When You Think Your Home Value May be Too Low. If you think the
value of your property may not be high enough to facilitate the refinance transaction, ask your
AmeriStar Loan Officer to have our appraiser prepare a desk review appraisal (typically at no
charge) to provide you with a range of possible values. This way you don't waste your money on a
full appraisal if you are doubtful about the value of your home.
5. Using the County Tax Assessor's Value as the Market Value of Your Home. Mortgage
companies do not use the County Tax Assessor's value to determine whether they will make the
loan. They use a market-value appraisal which may be very different from the assessed value. This
difference is because the marketplace is a more current indicator of value than the County
Tax-Assessor's office, which may only review values every other year.
6. Signing Documents Without Reading Them. Whenever possible, review in advance the
documents you'll be signing. Even though some specifics of your transaction may not be known
early in the transaction, the documents you'll sign are standard forms and are available for review.
It's unlikely that you'll have sufficient time to read all the documents during the closing
appointment. For example, at AmeriStar, we send you your Loan Application documents to review
in the comfort of your home, at your own pace.
7. Not Providing Documents to your Mortgage Broker in a Timely Manner. When your mortgage
broker asks you for additional documents, provide them immediately. They are doing what's
necessary to get your loan approved and closed as promptly as possible. And that's in your best
interests. Otherwise you may be paying a higher rate on your current loan longer than necessary.
The bottom line is: Delays in providing documents can result in costly delays in getting your
transaction to settlement.
8. Not Getting a Rate Lock in Writing. When a mortgage company tells you they have locked your
rate, get a written statement which includes the interest rate, the length of the rate lock and details
about the program.
9. Pulling Cash Out of Your Existing Credit Line Just Before You Refinance Your 1st Mortgage.
Many lenders have cash-out seasoning requirements. This means that if you pull cash out of your
credit line for anything other than home improvements, they will consider the refinance to be a
cash-out transaction. This usually results in stricter requirements and can, in some cases, break
the deal! Please feel free to consult with your AmeriStar Loan Officer if you have any questions
about this.
10. Getting a 2nd Mortgage Before You Refinance Your 1st Mortgage. Many mortgage
companies look at the combined loan amounts (i.e. the 1st mortgage balance plus the 2nd
mortgage balance) when refinancing the 1st mortgage. If you plan on refinancing, check with your
mortgage company to find out if getting a second will cause your refinance transaction to be turned
down.
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