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With interest rates at their lowest in two years, many people are rushing to refinance.
But once the process starts, be aware that it can bog down without the consumer's diligent attention.
"A lot of people trying to refinance missed the boat a few years ago, and sat on the fence, just waiting ... then rates went up, and some were disappointed that they didn't lock in," said Carla Alexander, loan originator at Community Savings Bank, North Palm Beach, Fla. "There was only a two-month window of opportunity at that time."
No way to predict rates, so lock in
No one can predict what will happen with interest rates during this latest refinance boom, but Alexander said many people are opting for the rate lock.
"Almost all of our applicants have been locking in the rate," she said. "Any time you can get long-term money under 7%, then it's a good rate and that's ok."
The reason a consumer may want to lock in is because turnaround time on refinances can range anywhere from 15 business days to 30 days or more.
"Expect four weeks before you can actually close, even though some lenders are offering commitments within 10 to 12 days," Alexander said. "The reality is, it will be 30 business days for a closing."
Ask for speedy loan processing
If borrowers have urgent need for the money and want to move it forward more quickly, then they should ask the lender for speedier processing. "For people who are dealing with lenders who are telling them longer than sounds reasonable, then I think they should shop around," she suggested.
Another tip for quick closing is to follow up with the loan officer after the paperwork is filed, and stay on it. Some lenders confided anonymously that since they currently are swamped with refinancing applications, they set them aside or don't give them top priority. Refinances are viewed as a short-lived income stream, some said, because lenders will give top billing to repeat customers such as real estate brokers and attorneys processing mortgages.
Time involved in typical refinance
Here is a breakdown of the time involved in a typical refinance application, according to Alexander and other lenders:
Day one -- Once the refinance application is filed, credit information will be pulled within 24 hours. Then any missing documentation -- such as tax returns, W-2s, etc. -- will be requested from the borrower.
Day five -- Five days or so later, expect the appraisal to be completed. If the appraisal is not completed within seven business days from application day, then call your lender.
Day seven -- By now, your loan application should be with the underwriter, assuming all your documentation is in place. Even with the same lender, you have to provide all the same paperwork as with the first mortgage, including check stubs, W-2s, tax returns, existing property surveys and title insurance policies.
Day 10 -- Underwriting should be occurring by now, and once complete, a commitment letter will be written and mailed to the borrower.
Day 14 and beyond -- Your refinance loan file should be on its way to the attorney's office or the title company. Depending on the office, turnaround on this could be as quick as three days -- or three weeks.
Day 30 -- If you have not heard from the attorney or title company about a closing appointment, then call them and request to schedule your closing immediately.
Don't call everyday
"Certainly, we wouldn't recommend that you be a pest and call everyday, but if at 45 days, nothing is happening, you had better start doing some legwork to find out what's happening," Alexander said.
The biggest drawback to speedy loan closure?
Not providing the right documentation, or delaying the time that documentation is submitted, lenders said.
"Processing time depends on the type of mortgage," added Dan Frahm, spokesman for Norwest Mortgage Inc. in Des Moines, Iowa. "For conventional loan refinancing, we're trying for closing within 15 days. For government loans, that time frame can be skewed."
Increased volume floods loan offices
Currently, refinance applications make up 39% of the total mortgage applications received at Norwest, Frahm said. And of the online mortgage applications received, 77% were for refinances.
"The majority of refinances we're seeing are asking for a 60-day lock and many are asking for a no-cost loan, with a little higher rate to eliminate the up-front money down," Frahm said.
Norwest is taking twice as many applications per month during the current low-rate period, since Thanksgiving, he said.
"The only thing we can do is assure consumers that if they have looked at their current rates and potential savings, it could be best for them to refinance now," Frahm said. "Processing time will vary, but the majority of our customers are requesting a 60-day lock."
Cash back slows down the loan
At Irwin Mortgage Corp., Indianapolis, Ind., Nick Vracas, first vp , said his company tries to turn around refinance applications in 15 days or less, if there is no cash-back involved.
"It's the appraisals and verifications of income and credit that require time," Vracas said. "I'd have to say turnaround is taking 30 days or so."
His company is so buried under the increased refinance paperwork that loan officers can't call back as rapidly as desired.
"They're leaving messages and it's taking several hours to get through," Vracas said. "There are delays."
Vracas says if the consumer is happy with the new payment, he advises locking in the rate.
"The longer the lock period, the more expensive the loan is, because the interest rate or points collected will be higher," he said. "Most of our customers lock in rates for 15 days."
Processing time varies, but Vracas said his company doesn't sweep refinance applications under the rug. "Especially if the application is for a customer of ours, we do an internal verification and it's on its way fairly quickly," he said. "Once we have the documentation, the process works well."
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