NW Indiana Loan Guy Blog

Posts Tagged ‘nwiloanguy.com’

I posted a short survey on a couple Facebook pages yesterday in hopes that I would have a better idea as to why more people are not refinancing in this incredibly low interest rate environment. Fortunately, I received almost 20 responses… a fair indication of what is on people’s minds right now. I big THANK YOU to everyone who replied!

Some of the responses are listed below. I am not targeting any one in particular, so please do not be offended if I use your reasons, as if one person is thinking this, certainly thousands more are also.

If I could use one word to sum up the results, it would be “communication”; as in miscommunication and lack of communication. For instance, I am still hearing that you need to have 20% equity in your home and 750+ credit scores to refinance (or even purchase). In reality, there are programs widely available so that you can finance in your closing costs with as little as 5% equity (and lesser known programs where you can refi even if you owe slightly more than the home is worth). And, as far as credit scores, 620 will still get you a loan, just not the best rates available.

One big concern has been communication with the banks and the loan officers. While this is not a new complaint, I think more people are recognizing that many loan officers do not do a very good job of keeping the clients updated. Now, more than ever because of the uncertain economy, borrowers want to be updated frequently. One respondent stated “I have been trying with (bank) forever now and just gonna drop it”.

One very valid complaint I heard from several people is that the property values have declined and that the appraisals are not showing enough value to be able to refinance. While this is good for purchasers, it is bad for those who would like to refi out of a higher interest rate loan.  One reason for this (I will try to keep it simple) is that the Home Valuation Code of Conduct has made the lending institutions turn to third-party appraisal services in order to get a “fair” appraisal that is not influenced by the loan officers. While that sounds great on paper, the net effect has been that the appraisers are taking pay cuts and the “less experienced” appraisers are doing more appraisals in areas they are not familiar with and may not be able to get good market data in, just to make a living. This is not a put-down to the appraisal industry, just a fact.

I personally have had a minimum of problems getting a fair value when the assigned appraisers were local. We just need to be realistic about “fair value” means. If you have purchased in the last 5 years, chances are you are not going to see a lot of appreciation.

Another comment I received is “… my stomach churns at the thought of having to do “the dance” with any bank. I am waiting for the hidden costs”. Another legitimate concern! While the government thought that changing the Good Faith Estimate from a one page document into one that is three pages would help the consumer better understand the costs of the loan (it didn’t), at least they tried. Maybe if we decided to all use the same definitions in the loan process, the clients would be better able to understand.

For instance, lets use the phrase “NO closing costs”. That sounds like on heck of a deal… Now explain to me why I have to pay for one year of insurance, $500 for an appraisal, $50 for a credit report, an origination fee, an application fee, a processing fee, a lender’s fee, three months more of insurance and three months of taxes for escrow, and even Up Front Private Mortgage Insurance of $2, 250 for every $100,000 borrower for an FHA loan.  Guess what… those things are considered “upfront fees”, “prepaids” and “escrow start-up costs”, not closing costs. And, don’t feel too good, because you probably paid for the closing costs in those fees without seeing it.

Remember that there are costs associated with doing a loan, but they do not have to be excessive. Just keep in mind that you are paying the loan officer for doing their part, plus a processor fee, the fees the bank charges to write the loan, an appraiser, the credit reporting company, the title company for the closing and insurance, mortgage insurance to the government if necessary, and the fees to start your escrow so that the lender can pay your property taxes and insurance for you.

See part 2 of the Barriers To Refinancing here.

Scott

PS. To get more information, including FREE reports, about how to negotiate the path to your next purchase or refinance, visit the NWI Loan Guy website.

PPS. To find out how we were able to go from application to getting a clear-to-close from the lender in just 4 days, contact me at scott@nwiloanguy.com.