Matthew Gates 10m 2,424 #refinance
The views of this article are the perspective of the author and may not be reflective of Confessions of the Professions.
How To Force Mortgage Companies To Compete Against Each Other
A mortgage is money that a bank or financial institution lends with interest to help you pay for the costs of your house, with many usually including the total mortgage the costs of the Homeowners Insurance, Escrow, and Property Taxes. Over the course of 30 years, mortgage lending may provide a bank with over $100,000 in interest charges. Multiply by hundreds of thousands of homes every year and that is called the real estate market that keeps the economy in business, or particularly, banks and lending institutions in business.
Before we continue further, understand that a mortgage company is simply in the business to lend money and make interest on it. Everything is purely business and there are never any hard feelings or emotions involved, other than the emotions at the closing date. Every company wants your business but they need to earn it by giving you the best offer.
A mortgage is often the single best investment for many people, but sometimes, there are some who regret taking on a mortgage. When it comes to a mortgage, there are several factors that should be on anyone’s mind including the interest rate, the monthly costs, and whether there is a private mortgage insurance (PMI) fee attached. A mortgage is a commitment, usually in the form of 15, 20, or 30 years. A mortgage allows you to work towards owning your home, rather than renting it, whereas you may turn around and sell it at a later date, and possibly even make profit on the sale of your home. There may be a chance of some profit at a later time for the homebuyer, as the price of homes usually goes up, but there is no profit for the renter when it comes to renting.
Ultimately, the plan is to make several mortgage companies compete against each other to ensure your business.
You will want to look for:
- Lower than average mortgage rate (as of 2022, average is about 3.5%)
- Lower discount points
- Lower monthly costs
- Lower closing costs and fees
While it may be enticing and your new mortgage company or loan officer may encourage you to do it, you will want to avoid taking any additional cash-outs with your refinance meaning you will do your best to not take out any additional loan amount other than what your current mortgage company payoff would be. This is the best way to ensure that your monthly costs are the lowest they can be. After you finish refinancing your home, you can always opt to take out a personal loan, but it is highly recommended that you DO NOT allow those costs into your new mortgage.
Proceeding with a home refinance will likely cost between $4,500 to $6,500 added on to your loan because of all the fees involved, but depending on what you have existing in the bank, how you plan to handle your future payments, and whether there is private mortgage insurance (PMI) attached to your current mortgage loan, it may be well worth the cost, which can be recouped within about 2.5 years if you send an additional $200 a month towards your mortgage costs. It may sound like a long time, but over the course of an average 30-year loan, it could be worth it.
If you want this to go perfectly, then we’re going to get straight to the point and avoid all delays so that you can get through as fast as you can to get your first loan estimate. After that, you can move on to hopefully get your best loan estimate. If you wish, you can involve a third company that might play the game as well. The more, the merrier, but the third company should only see the better offer, as you do not want to disclose that you are making multiple mortgage companies compete against each other. Basically, the first company will never know about the second company while the second company will never know about the third company.
Once you have the paperwork for one company, you’ll literally have all the documents together for the other two, so it is best you upload your documents to a cloud file storage which can prove useful at later times for a possible second refinance. Each mortgage company will require different documents, but all of them will require some general documentation. All mortgage companies will first run a soft credit check and then a hard credit pull.
By having the main documents ready, you can cut the whole process of refinancing to about 2 or 3 weeks before closing.
The main documentation that is required:
- Copy of your most recent W2 tax form though the prior two years may be recommended
- Copy of any additional tax forms if you have income from those
- Copy of the last two to three paystubs from your job
- Copy of your most recent bank statement for the past month
- Copy of 3 to 6 months of your current mortgage transaction logs if applicable
- Copy of your Homeowners Insurance policy
- Copy of your Escrow log if applicable
- Copy of the survey of your property* or address report, often obtainable through the online website of your county
- Copy of any student loans payments you are currently making
- Copy of any additional loan payments you are currently making
- Copy of any HOA agreements if applicable
- Copy of the last known appraisal of your home (optional)
- Copy of the financials for any major renovations done to your home if applicable
As denoted by the asterisk for the survey of your property, unless you’ve manually put in a septic tank or well, or made other major renovations to your property, you may need to hire a company to re-assess your property, but if your property remains untouched since you bought it, you will find the information for free through your county tax assessors’ website, usually by putting in the address of your property, and downloading the report. A property survey signifies the land owner, tax year assessed, land boundaries, such as the actual acreage and legal property descriptions, city zoning, ordinances, school district, and any flood zone information.
If you have these documents available at hand, the mortgage company will have to take on the task of simply verifying that all of the information is accurate and true. With modern technology, your information is mostly entered into a computer that calculates your bills and ensure you are able to afford everything. Mortgage companies will find everything you are hiding, but will not hold everything against you and it will help to speed up the process if you disclose everything upfront. Disclosing certain information may delay the process or bring about more questions, but not disclosing information, especially when it comes to your financials could ultimately be your demise with a certain mortgage company.
In addition to speeding up the mortgage process by having your documentation ready, it will help you if you:
- have a low debt-to-income ratio or no debt
- have good credit history
- have a good credit score
- have always made your payments on time
- have no outstanding loans* or liens against you or your home
- have never filed for bankruptcy in the past
If you have at least one outstanding loan, denoted by the asterisk above, this may not delay the process, but you should probably volunteer to submit the log transactions of your monthly payments, which will eliminate all questions by the mortgage company. If you have multiple outstanding loans, then take the time you need to pay them off, as you may not be able to proceed. The process of verifying all of this information with your current mortgage company and title company may take up to a week or two. The people working on this process are known as underwriters, who take the time to submit your information and verify it all. There are multiple fees associated with doing all this, often set with your closing costs.
Once you have obtained a mortgage loan estimate, submit it to the second company as soon as possible and ask them if they would be willing to beat the rate you were provided. If they are unable to do so, then no hard feelings, and you have your answer. Most times, you must lock in your rate for them to proceed. The question you should ask is: “If I lock in my rate, do I have to commit, or may I back out at any time?” Most mortgage companies will allow you to back out at any time up until the closing date or until you officially sign the document that states you agree with the final disclosure. If the company does not allow you to back out, then it is best to avoid the company.
If the company offers a better rate, then proceed to upload all of the documentation that you have already saved. Some companies may charge a fee or an appraisal fee. It is best that if you’re looking to save money, you go with the companies that will either waive the fees or reduce the fees altogether. The best ones will waive the appraisal because it is a refinance and you already own the home, so they trust you haven’t done too much to it. This company will proceed to get to work immediately and have a loan estimate for you within 1 – 3 business days. If you compare the two loans, you can opt to go with the better choice.
A word of advice: if there is a private mortgage insurance (PMI) fee attached, it would be best to ditch the loan estimate. The whole point of any refinance is to lower costs, including the unnecessary insurance fee. The money will not go towards principle or interest, but rather just paying your mortgage company to ensure them that you won’t default on your loan. As you have been paying your mortgage for a while, it is very likely that you have proved yourself enough that you are very unlikely to default on your loan. Unfortunately, most mortgage companies will not remove the fee as it is set for the lifetime of the loan, so to remove this, refinancing from an FHA to a Conventional loan is often the only option.
DO NOT BURN BRIDGES WITH THE ORIGINAL COMPANY. You may have gotten a better offer and are ready to ditch the first company. It is not the time to do this just yet. There may be times where the second company deal may seem as if it is going smooth and at the last minute, they may find something wrong, and refuse to proceed with any further business dealings. Instead, if the first mortgage company is already asking you to schedule your closing date, ask your Loan Officer when you need to close by and simply mention that you are doing some research i.e. running the financials on your loan estimate to make sure it is right for you. They will ask you if you’d like to speak to a Loan Counselor, who will explain the Loan Estimate in great detail, which you may do so. However, if you simply want them to stop calling and give you some time, then ask them to give you a few days to get your affairs in order.
At this point, the second company is in motion and may need a day or two to complete their own process. If you are ready to involve a third company, than you should do so as immediately as possible. Ask them if they would be willing to take a look at a competing loan to see if they would do better. If they are not willing to look, then your business is done with this third company. If they are willing to accept, then only submit the better loan offer and proceed to do the same thing that you have been doing: upload all the documents, do as requested, and you should be able to get the ball rolling with a third company. It may be another day or two before you get a loan estimate.
Once you have the two or three loan estimates, you can compare for the best price, the lowest costs per month, the lowest fees, etc. Choose the best loan estimate that works for you and proceed with the closing date. If everything goes well, all three companies will want to close with you as soon as possible. It is at this point, where you must choose the worst loan estimate, call the company, and let them know that you appreciate their time and work, but that you have received a better offer.
If they ask for the better offer, than it is at your own risk to give it to them. They may be upset but work to beat the competition. However, there is nothing stopping them from getting you to cancel on the other two companies, only to cancel on you, although this is probably my own mind wandering crazy. It would make more sense to simply state that unfortunately, despite all the work they’ve done, you are not going to consider refinancing with them. It is a letdown but be as respectful as possible.
You may also let the second company down by letting them know that you have seen a better offer and are no longer interested in proceeding with the refinance, or if you choose otherwise, to see if they would be willing to do better than the best offer you received, than you may try this as well.
Once you are certain exactly which loan estimate you want to go with, you are ready to schedule your closing date, and it is at this point you know you will have received the best rate possible. There are no hard feelings and do not feel too bad about turning down any of these mortgage companies that did not give you the best rate, because there is no doubt that any of these mortgage companies would drop you at the first sight of seeing something they didn’t like of their report findings on you. In the end, it is all just business, and you are trying to get the best deal for the next 30 years of your life.
To do all this, you will need a good amount of patience and no attachments. It will take time but if you are after the best rate, than force multiple mortgage companies to compete against each other. Good luck in your refinance!