Are you shopping for best refinance rates for your next home loan? Common mortgage mistakes can turn your historically low refinance rates into an expensive mistake. Mortgage lender fees make or break the deal you’re getting. Here’s a winning strategy for paying less for the best refinance rates on your next home loan.
Lowering Your Refinance Rates Is About Winning
You might not think about it this way but it’s really you against the best mortgage lenders. They’re in business to make money. Your loan officer is working for their loan origination fee. The more you pay either of these the less benefit you’re getting from low refinance rates.
The problem with shopping for refinance rates from the best mortgage companies is that making an apples-to-apples comparison of interest rates and fees can be extremely difficult. If you follow these simple tips the process becomes much easier and useful.
Where to Start Shopping for Your Next Home Mortgage
Before you do anything else it’s important to start with your credit reports. Getting the best refinance rates depends almost entirely on your credit score and loan-to-value ratio. While there’s little you can do to improve your LTV in the short-term, there are steps you can take to significantly improve your credit score.
Have you already started shopping for refinance rates? If you’re finding the quotes you get are higher than what lenders are advertising the likely culprit is your credit score. Here’s how to fix that.
- Visit AnnualCreditReport.com
- Use a Credit Monitoring Service
- Improve Your Credit Score
This government-mandated website is responsible for providing you a free credit report from each of the three credit bureaus every year. It’s important to stay on top of the contents of these credit reports and make sure the information they hold is correct.
If you find mistakes in your credit reports each of the reporting agencies (Equifax, Experian, & TransUnion) has an online process for disputing errors. Be sure and allow enough time for the correction to be reflected in your score.
AnnualCreditReport.com won’t give you a credit score unless you pay. An alternative to paying for your score is to subscribe to a credit monitoring service that alerts you anytime there are changes made to your credit reports. If you’re a credit union member most offer high-quality, low-cost credit monitoring services.
Once you’re confident that the information in your credit reports is correct you can boost your credit score by paying down the balances on your credit cards below 30% of your limit. If you don’t have the cash to pay down the balances one strategy is to ask for a limit increase; however, avoid opening new accounts whenever possible.
How to Shop for the Best Refinance Rates
Once your credit score is the best it can be you’re ready to begin shopping for refinance rates. When you do this it’s important to protect your credit score from excessive lender inquires. When a mortgage lender runs credit to quote refinance rates your score will take a hit for the inquiry.
You can minimize the impact by limiting all of your refinance rate quotes to a two week period. When you do this you’ll only get dinged for one lender’s credit inquiry.
Some people think that by refusing to give loan officers their Social Security number when shopping for refinance rates they’re protecting their credit score. This is a bad idea because you’re relying on that person’s best guess for a mortgage quote which is usually a waste of everyone’s time. Always provide your SSN and pertinent financials to make sure you’re getting an accurate quote.
Shopping Smartly With Your Good Faith Estimate
The new Good Faith estimate is vastly superior to the old version if you use it correctly. The only way to use this document to make an apples-to-apples comparison of refinance rates and fees from today’s best mortgage lenders is to first choose a mortgage program and stick to it.
If you let a fast-talking loan officer quote refinance rates and fees across different programs you’ve already lost the battle.
Do you need 30-year fixed refinance rates? Are you looking for an FHA streamline refinance? Want to pay-off your home with 15-year refinance rates? That’s your program, stick with it.
How to Read Your Good Faith Estimate
The government did a great job simplifying this disclosure document. In order to use it effectively make sure the quotes you get are all from the same program and DO NOT include discount points. If you’d like to see how buying down your refinance rates affects your payment there is a table on page three of the Good Faith Estimate. For now you’re going to use page two for comparing refinance rates and things like the loan origination fee.
Start with box one on page two of your Good Faith Estimate. This is the loan origination fee paid to the person or company arranging your home loan. Many brokers will tell you that one percent is standard; however, I’ve reviewed community-based credit unions that charge as little as $400 for the loan origination fee. Remember the less you pay here the more benefit you’ll get from lower refinance rates.
Next, focus on the Yield Spread Premium found in box 2. For the uninitiated, Yield Spread Premium is a lender credit generated for accepting higher than necessary refinance rates. This credit is used to pay your loan origination fee and other closing costs. Is accepting higher refinance rates to pay your lender fees worthwhile? You can use a simple mortgage calculator like this one to determine if it’s a good idea.
Simple Mortgage Calculator
Finally, look at the fees found in Section B starting with box 3. The fees in box 3 are lender specific charges that may or may not include junk fees like loan processing. Box 6 lists required fees that you can shop around for a better deal. Comparing the fees listed in box 3 through six across different lenders can lead to a productive conversation with prospective loan officers.
If you find a loan officer getting impatient or even hostile at your questions regarding fees found on the Good Faith Estimate simply move on to the next lender.
Remember that the Good Faith Estimate is just an estimate and once you’ve found an offer you’ll need to reconcile every with the HUD-1 Settlement Statement before signing the contract.
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You can learn more about getting the best mortgage rates for your next home loan without paying unnecessary fees by checking out my free Underground Mortgage Videos.
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