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Open thread: Advice for people refinancing mortgages

By Holden Lewis ·
Tuesday, May 25, 2010
Posted: 11 am ET

What advice do you have for today's homeowners who are refinancing their mortgages? Let us know in the comments section.

This is a call to mortgage originators and to people who have refinanced recently. What potential pitfalls await today's refinancers? What should borrowers do to avoid problems?

Post away in the comments. Don't embarrass me by keeping the comments section empty.

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Holden Lewis
June 21, 2010 at 8:19 am

Woo hoo! Carol, you're the best! Thank you.

June 20, 2010 at 10:53 pm

To: Mark (from Carol: VP and Loan Officer)

It could make sense for you Mark. Get an amortization schedule and examine the math. Consider a 25 year loan - an option rarely mentioned to borrowers.

Of course, if you "need" to save money, then analysis becomes moot. Many homeowners need to drop that monthly payment and going back to a new 30 yr is a cost they must bare. Everybody's different.

But has someone offered you a 30 yr at 4.25% with no points or origination fees? Sounds impossible to me. The problem you might find is you just can't get that deal.

Best to you.

June 20, 2010 at 10:42 pm

To: Pat (from Carol: VP and Loan Officer)

Regarding how much is required for escrows, if you have a tax bill due July 1st and January 1st, then closing soon should be to your advantage so long as that July 1st bill has been paid before you close. If that's the case, then you should escrow no more than 3 months taxes. For homeowners, expect to escrow about 7/8 months.

FYI, if that tax bill due 7/1 cannot be verified as paid before you close, you will have to pay it at closing. Sometimes in these cases, the bill winds up getting paid twice - by your current lender and the new lender. But you will get that money back of course - eventually.

Here's how to figure it out escrows at closing: There must be enough funds in escrow to pay your tax/insurance bills when they become due. If you close in July, you will not make your 1st payment until Sept 1. So for homeowner insurance (due again in Feb), your lender will collect from you (via your payment) 5 months of insurance escrows prior to Feb 1. If the premium is due Feb 1, then the only way to get the additional 7 months is to collect it from you upfront at closing. There can be a 1 or 2 month give or take here depending on how your lender handles the calculations and the exact due date of the premium.

In whichever case, on Feb 1 (or when the next premium is due), your lender wants to have that 12 months of insurance escrows available to remit to your insurer.

Follow the same logic for the taxes.

As a side issue, that .25% extra for no escrows is standard across the board. Very few exceptions. For FHA and VA loans, the borrower can never pay their own taxes/ insurance - period.

Good luck.

Sidebar: Holden, love your work. Been reading you for years. Wouldn't dare let you down. :-)

June 20, 2010 at 10:13 pm

To: Linda Gomez (from Carol: VP and Loan Officer)

Linda, both pension and SS disabiity are accepted as income to get a mortgage loan. At 68, my aunt just bought a new home using her pension and SS.

As Holden commented, I also wonder if the bottom line reason for denial was insufficient income. Fannie Mae/ Freddie Mac/ FHA/VA guidelines all accept pension and SS income for qualification. Even child support can be used if the support will continue for at least 3 years.

Go back to your lender and see if they will give you the details. Unfortunately, many lenders will deny a loan w/o revealing the nitty gritty info. A "job" is not required.

If they tell you that your "debt to income" ratio was too high, then that means the pension and SS were insufficient according to their guidelines. If indeed income is not sufficient, then you will not qualify anywhere. Lenders are not lowering the requirements for loans - in fact, they are tougher.

One last thing to share: Borrowers who qualify for a loan modification have high "debt to income" ratios, so if you thought you were eligible for a loan modification, perhaps your ratios are high. Borrowers who have the income to handle their mortgage payment and other monthly debts do not qualify for a loan modification.

Good luck to you.