Congrats on being a homeowner! Real estate is one of my favorite asset classes. Over the past 20 years I've owned seven properties and have done multiple mortgage refinances. There are several mortgage refinance strategies and points I've learned along the way that have enabled me to save significantly.
I hope my mortgage refinance strategies and tips below can also help you save a lot of money with your refinance process as well.
The Mortgage Refinance Process
I remember back in 2011 how happy I was when my primary residence mortgage refinance was completed. It took 8 weeks from start to finish.
The process took so long that I actually forgot I was refinancing my mortgage until the bank called to ask when I could meet the notary to sign all the documents.
The process was pretty painless since I refinanced with the same bank. I sent them the general paper work such as my W2, bank asset statements, and pay stubs.
They did one appraisal which took all of 20 minutes. Then all I had to do was wait four more weeks to get it done! That refinance was much easier than the refinance I did the year prior.
Funny enough an 8-week mortgage refinance sounds fast to me now. I did a refinance in 2019 that took over four months to complete. That was brutal, but ultimately still worth it in the end.
Mortgage Refinance Strategies To Consider
I've learned a lot of things from all my various refinances over the years beyond the basics. I hope you'll find my below mortgage refinance strategies useful in your mortgage refinancing or initial mortgage application process.
1) Try and refinance with the same bank.
If you go through the same bank as your mortgage, you might get some extra discounts. Given you are an existing customer, your lender wants to keep your business.
During one of my refinances, my bank gave me an extra 3/8 credit. Plus they waived the $750 home appraisal fee so that there were no out of pocket expenses.
Furthermore, they had all the basic paperwork already and just needed some updated forms. Using my existing bank made things much easier.
2) You have one free pass.
Even after you “lock” in your mortgage, once your application gets approved you are able to ask for a lower rate if rates decline in the application approval process.
When I locked my 3.25% 5/1 ARM rate, the 10-year yield was at 2.1%. Not bad I thought. But over the next two weeks, the 10-year yield plummeted to as low as 1.75%, or a full 35 bps lower.
Rates were very volatile and settled somewhere around 1.88% when I asked if they could lower my rate further. They said yes, and lowered my rate to 3.125%.
3) ARM loans are assumable.
Let's say I want to sell my primary home in two years and 5/1 ARM rates rise to 8.125% due to inflation and a recovery in the economy. If the buyer qualifies, s/he can assume my 5/1 ARM at 3.125%, thereby saving 5% in interest expense!
A lower mortgage rate is a huge benefit to the buyer because it allows the buyer to pay more or get more home. In effect, you have shorted a bond in the amount of your mortgage and will capitalize on the gain.
4) Title insurance is extremely important.
In fact, title insurance is like the bible for your property. A title insurance policy is a contract of indemnification for loss by encumbrance, effects in the title, or invalidity, or adverse claim to the title to the real property that may occur prior to the effective date of the policy.
In other words, the title company guarantees the veracity of the property you are purchasing or selling. If there are any discrepancies or disputes, the title insurance company will fight for you.
Make sure you keep a copy! You never know who will try and make an adverse claim on your property 30 years from now.
5) Refinance before you leave your job.
Another one of my mortgage refinance strategies is to always refinance before you leave your job. You may think, “Oh I'll wait and do it after I quit because I'll have so much more time on my hands.” Not a wise move.
Banks need to see recent W2s, independent contractor income only counts if you have two years worth, new jobs carry less weight. Plus, you'll lower your own risk of default. Income and expenses are uncertain when you don't have a dependable salary after all.
6) Understand all the mortgage refinance fees.
Very few things in life are truly free. There are fees all over the place including refinances. Make sure you understand all the mortgage refinance fees your lender is charging. There are a lot of them!
7) Avoid Large Financial Changes Before/During A Refinance
Another one of my mortgage refinance strategies is to avoid any significant financial change before or during a refinance.
For example, avoid all of the below if at all possible:
- Buy a car, boat or anything very expensive
- Purchase another property
- Make big deposits or withdrawals in your bank accounts
- Credit inquiries
- Quit your job, get laid off, start a new job, or retire
- Lower your income if you're self-employed
- Make changes to your revocable trust
Lenders have stringent underwriting processes these days. They will go through your accounts with a fine tooth comb. Don't give them any unnecessary reasons to question your viability.
You could still qualify for a refinance if you do any of the items above, but you'll have to undergo a longer, more stressful refinance process. Feel free to peruse my mortgages category for more helpful tips.
8) Shop around for a mortgage
Check the latest mortgage rates online. You'll get real quotes from pre-vetted, qualified lenders in under three minutes. The more free mortgage rate quotes you can get, the better. This way, you feel confident knowing you're getting the lowest rate for your situation. Further, you can make lenders compete for your business.
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