- Picking a lender for a home loan for the wrong reason (i.e., the lowest rate, your existing lender.) People choose lenders for home loans for the wrong reasons. It's important to get a low rate, but that's not the only thing to think about. Even if a lender has the lowest rate, they may charge extra fees like loan fees, origination fees, and copy fees. This means that even if your rate is the lowest, you will end up paying more for your refinanced home loan. Waiting for the Good-Faith Estimate (GFE), which should list all the closing costs, is the only way to protect yourself. Compare the GFEs from different lenders of home loans.
But when you want to refinance your home, there is more to it than just comparing GFEs. If time is important to you, you should choose a mortgage company that can move fast. Ask each company how long it takes on average to close loans like yours.
Ask around among the people you trust. Find out who has recently refinanced and asked them how they liked the company. Don't think that your current mortgage lender is better than a new one. Since most home loans are sold on the secondary market, everyone has to meet certain requirements, and your current lender will probably need the same paperwork as a new lender. Once you have a promise from a new lender, however, it doesn't hurt to ask your current lender to beat it. Usually, they will. We will find you the best price.
- Not getting everything about your home loan refinancing in writing. Write everything down. Ask the Loan Officer to put everything he tells you in writing. If someone tells you that your new rate is guaranteed, don't believe them. Get it on paper.
- You don't know how much your home is worth. Many people try to refinance their home even though they don't know how much it's worth. For the purpose of refinancing, you can get an estimate of your home's real value from many places. There are home value estimators on the websites of many real estate agents. You can get a rough idea of how much your home is worth by listening to a mortgage company try to sell you a mortgage.
Check the recent sales in your area and look for a similar house in a similar place. Or, you can ask the appraiser to drive by your house and tell you what he or she thinks it's worth. You can order a thorough appraisal if it is in the right ballpark. Before you try to refinance your home loan, you should know how much your home is worth.
- When you refinance your home loan, you don't do the math. Figure it out. There is a cost to refinancing your home. You need to find out how much it will cost and how long you plan to live there. For example, if you plan to stay in your home for 5 more years and the cost of refinancing it is $5,000, you need to save at least $1,000 a year for the deal to make sense. If refinancing only saves you $50 a month, which adds up to $600 a year, you will lose money.
- Not thinking about getting a second loan. When you refinance your home, you pay off the whole loan. Say you have a home that is now worth $400,000, but you only owe $250,000 on it, and you want to take out $50,000. If you refinance and take out $50,000 in cash, your new loan could be for $310,000, which is the amount you owe plus the cash you took out plus the total cost of refinancing, which is 3%, or $10,000. It might be better to get a second mortgage for $50,000, pay a slightly higher interest rate and points, and only have a $50,000 base instead of $310,000.
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