Refinance Battle Plan

Today's Personal Journal section of the Wall Street Journal had a great piece on refinancing your mortgage. The entire article can be found here (you may or may not need to be a subscriber). While some items on the refi checklist are the same as they've ever been (ensure you have equity, check your credit score, etc.), there are some newer concerns that every real estate agent, loan officer and borrower should be aware of.

- While not a completely novel issue, you should know that jumbo money (loans in excess of $417,000 in most places) is not as cheap, and will typically come with a larger interest rate than "conforming" loans backed by Fannie Mae and Freddie Mac.

- Ideally, you have at least 20-25% equity in your home. If you don't, however, you may still be eligible to refinance at a lower rate through the Making Home Affordable program. Clink here for details.

- How a lender obtains an appraisal as changed effective May 1st as a result of the Home Evaluation Code of Conduct. Here is a nice breakdown from another blog on the real life impact of this change.

- Second mortgage and home equity loan holders may be less likely to stay in second position than in previous refinance booms. If you have a second, you may want to check with that lender before commencing the refinance.

- Condominiums are becoming more difficult to finance, as the lender underwriters are looking more closely at the condo project as a whole (not just your unit).

Slowly Subordinating

Stop me if you've heard this one before. *

You or your client just locked in a killer rate on a refinance. Set to close in 30 days. You have a mortgage, the one you plan to pay off. You also have a home equity loan or line of credit. Maybe you haven't tapped into it yet, maybe you have. It's for a college tuition payment, new swimming pool, or just a "break-glass-in-case-of-emergency" option for the unexpected. Whatever the reason, you want to keep that line open.

Here's the problem: That loan or line of credit is likely encumbering your property, and if you want to keep it open, you will need the lender to "subordinate" the mortgage or deed of trust.

Here's the bigger problem: Due to current volumes and demands on the loan industry, getting that subordination agreement can take time and money.

At least one major lender has told us that a normal request for a subordination agreement takes 10 business days and will cost $125.00. Need it quicker to get it in time for settlement? A "rush" request (5 day turnaround time) can cost $200.00.

What can you do about it? As a loan officer or a real estate professional advising the borrower, ask the following questions at time of loan application:

1. Do you have any home equity loans or lines of credit? Probe a little. They may not think the loan is tied to their property, but if it's truly a "home equity" it likely is.
2. Do you want to keep it open after the refinance settles?
3. Can you gather the contact information for this loan quickly so we can see what this particular lender's policy is on subordinations?
   

The sooner this information gets into the hands of the title company, the better the chances that this issue will not delay the closing, and will likely cost the borrower less in the process.

* Just kidding, please keep reading. Also don't forget to subscribe to this blog. We love subscribers!

NOTE: Topic inspiration came from a post on Fred Glick's blog called Top 10 things you may not know about refinancing. Further research was done by always helpful Lauren Dersnah.