How You Can Avoid Problems in Your Refinance or Mortgage Loan Process

Most financial advisors opined that homeowners or first-time homebuyers should think about obtaining a refinancing or obtaining a pre-approved loan by Fall 2011 because mortgage rates will rise starting this Fall. Most of my friends were amazed that when our loan application was complete and passed to the underwriting department, it was approved within two day, even though we had a few wrinkles. We attributed our success to being proactive. In hindsight, we could have made the process even smoother. I am going to tell you how.

Understand Your Loan Processor

I had conversation with several friends who applied for loans with the same lender, Pentagon Federal (PenFed), and we all detected different communication styles of our loan processors. Mine did not want to talk to me on the phone, while my friend had one who only wanted to talk on the phone. Mine took awhile to respond, but on the other hand, everything was in writing, and in some ways, it was comforting that her explanation was in writing in case anything went wrong. However, waiting for her email was excruciatingly painful. As you can tell, a processor who only communicates by phone will leave you feeling vulnerable because nothing is in writing. It is better to have a mix of both types of communications. You might want to talk about this with your loan processor and avoid the agony that I experienced.

Credit History

Your loan processor should have enough experience to tell you whether your credit history will be a problem for an underwriter. A couple of time, my loan processor expressed that my credit history was fine. However, I later found out that the underwriting department returned my packet to the loan processor so that she can inform me about an unusual Fannie Mae requirement and order a supplemental credit report. What is that you may ask? This is allegedly a more detail report that can be ordered within 24-48 hours for an additional $10. In reality, there was no further information between the first run at the beginning of the application process to the day our application packet returned from the underwriting department.

What was our problem? Fannie Mae will not approve an applicant whose credit history reflects credit dispute, even if it is your right to dispute the credit information. The reason for this is that numerous credit-fixing companies have provided poor advice to dispute credit information in order to improve credit scores. So, Fannie Mae imposed this ridiculous requirement that prevents an underwriter from using Fannie Mae software when an applicant has an existing credit dispute. What a lender will not tell you is that if the debt is paid but you want to dispute it, this is not really a “dispute.” A true dispute is if the obligation was not paid. Also, a lender should have underwriters who can manually override the software or whatever is needed to process the loan paperwork. The loan processor should be able to tell you which company shows your comments so that you do not have to review all three reports. We scrabbled within a day to contact one of the three credit companies, learning that we were required to order a current credit reports in order to secure a report number in order to speak to any customer representative. (Don’t forget that we all the right to a free credit report from each of the three credit companies annually) We were also told that if there is no outstanding obligation that this would not take 60 days to investigation. However, we also found out that a request to remove my personal remark that should have been processed in 48 hours never happened. We were fortunate that the underwriter changed his or her mind and manually approved our loan.

Be Proactive About Documentation.

Your loan processor should be able to tell you how long each type of document will remain fresh. For example, is a pay statement good for 30 days or 45 days? Is a bank statement good for 30 days or 45 days? If you know that your documents are older than the specified time period, be prepared to offer new pay statement or bank statement.

Determine Whether Your Lender Will Accept An Appraisal Of A Home With Some Construction Remaining.

One lender told us that there cannot be any construction remaining before it can be appraised. This information is not entirely correct, as we learned. Our appraiser was able to evaluate my home even though it was still under renovation and construction. A good appraiser will credit you for your additions, even if the home is still in construction state.

Determine If There Are Any Names Changes That Would Delay The Process.

Be mindful that if a person’s name changes and the new loan does not match the prior loan, the new lender will have to work with an escrow company to draft a quitclaim deed to change the former name to the current name before the loan can close. Perhaps you may want to bring this to your loan processor’s attention so that this would not be a last minute hassle, jeopardizing a smooth and targeted closing. Particularly if the new interest rate is better, you know that any delay is a waste of money.

Be Prepared To Overpay At the Closing

Even though we had a cost-free closing in our refinance, we were amazed that we still paid quite a sum in interest. If the interest rate lowers, most banks give you the option to pay to unlock the rate. In our case, we unlocked the rate at 4% in March 2011 and locked in at 3.25% in June 2011. Especially in a refinance, be mindful of the interest that will accrue between the closing and loan payoff date. Also, there is always interest from the existing lender, since a monthly mortgage payment applies to the month that just passed. In our case, we did not roll the interest into the new loan, and we took out a smaller loan than the existing loan, creating another layer of complication. Despite the best calculation from the existing lender, we noticed that its calculation was off by over $800, which took 2 months to refund.

Interest rates have never been so low. We went from 6% to 3.25% which is quite a savings. In this tight economy, when we all are looking to save money, you want to avoid any problems in refinance or mortgage loan process that will result in surprises and costly delays.