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As mortgage rates plummet, some homeowners are sitting on the sidelines waiting for rates to drop even further.
Paul Allman, manager of Internet operations at Home Security Mortgage in Grand Rapids, Mich., offers this advice. "... if you're sitting on an 8 or 9 percent interest rate, now is the time to pull the trigger."
"They're waiting, hoping the rates will go lower but now is not the time to be greedy," Allman said. "I've seen this happen before so I'm encouraging those who call us with questions, to lock in now."
At Home Security, what used to take 48 hours to process now takes up to 10 working days because of the "deluge" of online applications, phone calls and faxes the lender has received from homeowners itching to refinance at a lower interest rate.
It's no wonder applications have swelled. Last week's average for a 30-year fixed mortgage rate was 6.91 percent, the 15-year dropped to 6.59 percent and the one-year adjustable mortgage stood at 5.59 percent.
"Due to large number of calls..."
Lenders said applicants encountered busy telephone signals over and over. Others were funneled straight to voice mail with a message that started with "Due to the large volume of calls ... ." Fax machines ran out of paper and e-mail in-boxes filled up.
But there's hope for the hesitant. Some lenders will allow homeowners to pre-qualify for refinancing. A homeowner can apply through this no-cost application that will determine if it is worth it to refinance their existing rate.
Lenders with Web sites often have the application online while most can take the information over the phone and via fax.
Pre-qualification assesses affordability
Pre-qualification provides an estimate of how much the homeowner can afford in a monthly mortgage payment. It is based upon the information provided by the homeowner and is subject to the lender's approval after checking a credit report, conducting a home appraisal and verifying income.
The lender will look at documents submitted by the homeowner. Such documents include bank account statements, W-2 forms (usually going back two years) and paycheck stubs.
Pre-approval is different. It is a firmer commitment from the lender. The credit report is already done, and the terms are subject to the appraisal of the house intended for purchase.
Pre-approval offers leverage
Lenders say a "pre-approval" gives the home buyer an advantage in the marketplace. It's easier to negotiate price, and closing the transaction usually takes less time. How long the processing of the application takes varies with each lender.
Given the flood of applications, homeowners need to be patient. A process that usually took a couple of weeks from applying to closing, now can take up to 45 days.
Allman said the homeowner can always lock in at the rate but it's more important to get the qualification process going.
But some financial experts warn refinancing moves in predictable patterns. A big drop in rates or the introduction of a new strain of loans can provoke a flurry of activity followed by a period of calm.
Some say stay with your current rate
At InHouse Capital Inc. in San Diego, Calif., a number of callers have been advised not to refinance, said Kris Taraz, managing director.
"Out of every 100 inquires we get, we've actually advise about five [homeowners] to hold on to what they have," Taraz said. "Either they have a competitive rate or they're going to move in two or three years."
Taraz even advises them not to let other lenders talk them into refinancing.
The company is averaging about 25 pre-qualification applications and 100 phone calls a day. Despite the volume, Taraz said turnaround on getting a response--not necessarily a final decision--is 24 hours.
Refi applicants more sophisticated
About 70 percent of the calls InHouse receives are from a "sophisticated crowd who know how the process works rather than first-time home buyers who may need a little hand holding." Most are asking if it makes sense to refinance and for a forecast on interest rates.
Pre-qualification also alleviates any commitment woes. At Capital Mortgage Services in Atlanta, Ga., pre-qualifying callers want the basics: the lowest rates, the closing costs and when to lock in, said Gary Altman, president of the 16-branch company.
"There's no philosophy to it, "Altman said, "Their questions are straight to the point." Pre-qualification applications have picked up since Altman recently appeared in a television interview about refinancing.
Consumer advocates say pre-qualification is an easy out because homeowners can see the numbers without signing on the dotted line.
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