If you are considering refinancing your mortgage you might wonder what steps you should take to ensure that you get a good deal on your next home loan. Doing your homework before refinancing will not only save you thousands of dollars, but could prevent many future headaches in the process. Here are the steps you should take when refinancing to maximize your savings and avoid expensive mortgage pitfalls.
Step One: Review Your Credit Records
The first step you need to take before refinancing your mortgage is to review your credit records for errors. Because the mortgage rate you qualify for with the new loan is based largely on your credit score any mistakes found in your credit reports are going to cost you money. Congress recently passed a law requiring each of the three credit reporting agencies to provide you with a free copy of your credit report once per year. If you haven’t already been taking advantage of this credit report now is the time to get started.
You can access your credit records by visiting the website annualcreditreport.com. When you visit this site print out your credit records from all three agencies. (Equifax, Experian, and Trans Union) When printing your credit reports each agency will try and sell you a credit score or monitoring service; however, you do not need to pay for your credit score. When you apply for a new mortgage loan your broker will be able to tell you what your credit score is for free so don’t waste your money purchasing your credit score.
Once you have all three copies of your credit records you will need to carefully review these records for errors. If you find mistakes in your credit reports you will need to dispute the error with the corresponding credit agency and allow sufficient time for the correction to be reflected in your credit score before applying for a new mortgage loan. Each credit agency has a procedure for disputing mistakes in your credit files.
Step Two: Shopping for a Wholesale Mortgage Rate
Once you are confident that your credit reports are accurate you are ready to begin comparison shopping for mortgage offers. Most homeowners don’t understand that the mortgage offers you receive are for retail mortgage rates that include commission based markup. When your mortgage broker quotes you an interest rate they’ve already padded that rate to get a commission from the lender. Your lender qualifies you for a specific wholesale mortgage rate; however, for every .25% that your mortgage broker marks this rate up the lender pays a bonus of 1% of your loan amount. This commission is paid in addition to the origination fees you’re already paying for your broker’s services.
This markup of your mortgage rate for a commission is called Yield Spread Premium and is not only completely unnecessary, but is dishonest in most cases because the broker isn’t telling you what they’re doing. You can avoid this unnecessary markup of your mortgage rate by finding an Upfront Mortgage Broker that will only charge a flat fee for their services without marking up your mortgage rate.
The Upfront Mortgage Broker Association
Upfront Mortgage Brokers belong to a national association of mortgage brokers that adhere to certain ethical and professional standards. You can find out if there are any members licensed in your State by visiting the Upfront Mortgage Broker’s Association website at upfrontmortgagebrokers.org. If there is not a member in your State you can still find a broker willing to offer you wholesale rates; it will just take negotiating on your part. You can start by contacting mortgage brokers in your phone book and telling them that you understand Yield Spread Premium and will not accept any loan offer that includes this markup. Offer to pay them a reasonable origination fee for their services but do not agree to a loan that includes any form of lender paid compensation. A reasonable fee to pay for loan origination is one percent of your mortgage amount.
Step Three: Lock Your Mortgage Rate and Close on the Loan
Once your mortgage broker has agreed to refinance you with a wholesale mortgage rate you’ll need to lock in that interest rate. Make sure you get written confirmation of your rate lock from the lender and not something typed up on your mortgage broker’s letterhead. Your mortgage lender’s written rate lock confirmation will clearly show any Yield Spread Premium attached to your loan so pay close attention to this document. You should also make sure that you get the HUD-1 statement and carefully reconcile this document against your Good Faith Estimate to make sure you are getting everything you agreed to and were promised with your new mortgage. The HUD-1 statement is the final word when it comes to your new mortgage so any discrepancies on this document need to be addressed before you sign the mortgage contract. Once you are satisfied that the HUD-1 statement is accurate all you need to do close and wait for your loan to be funded.
You can learn more about refinancing your mortgage with a wholesale mortgage rate and expensive pitfalls to avoid in the process by registering for a free mortgage DVD. Sign up today, the videos are yours free with no obligation.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
