Part of the process of refinancing a home is shopping around to compare various mortgages. Use the following list of questions to ask mortgage lenders when comparing refinance deals.
- What is the refinance rate and will you have to pay points? The mortgage rate you are offered depends on several factors, including your credit score and loan-to-value. Even if you have a good credit score you might not be offered the best mortgage rates if you have less than 20% home equity. Paying discount points can help you buy down the refinance rate. Each point is equal to 1% of the total mortgage loan and generally lowers the mortgage rate by 0.125% to .250%.
- Can the mortgage rate be locked? Locking in an interest rate can protect you in case refinance rates rise. Mortgage rates may be tied to an index such as the London Interbank Offered Rate (LIBOR) and fluctuate regularly. Generally, mortgage rates are locked in for 30 to 45 days. Expect to pay a fee to lock in a mortgage rate, but some mortgage lenders may be willing to waive it.
- What documentation is required? Be prepared to provide full documentation to do a home refinance. Mortgage lenders have pretty much washed their hands of no-documentation mortgages, loans which were popular when the housing market was booming. Your mortgage lender will expect your most recent pay stubs and tax returns. You'll also be asked for statements from checking, savings, retirement and investment accounts (all pages).
- How long will it take until closing? Some mortgage lenders work faster than others. But even the best mortgage lenders can become overwhelmed by too many refinancings in the pipeline. Before filling out an application, get the best estimate of the timeframe involved. Not only will paperwork have to be processed, but an appraisal must be scheduled before the closing.
- What closing costs are involved? Closing costs usually involve fees from the mortgage lender as well as third-party fees. Among the closing costs you can expect to pay are fees for the loan origination, credit check, appraisal, and mortgage insurance if your have less than 20% home equity. You also may have to pay an attorney, title company, home inspector, or other third party. Refinancing with the same mortgage lender could allow you to roll over money in your escrow account for property taxes and insurance. If you refinance with a new lender, be prepared to bring proof to closing that you have a homeowners' policy paid up for a year and funds for an escrow account to cover taxes.
Comparing mortgage quotes doesn't have to be difficult if you ask the right questions. The best mortgage lenders will take time to explain all the mortgage programs that may be available to you so you can make the right choice about refinancing.