9 Refinance Mistakes and how to avoid them

May believe it's easier to deal with your current lender. But he may not offer the best option in terms of rates, fees and other terms and conditions. So, it's better to shop around with some more lenders and compare the offers till you get the right choice.

However, even if it's your current lender with whom you'll refinance, you need to re-qualify for the new loan and as such your current financial situation will be verified.

When you are into refinancing, you'll have to pay closing costs which can be offset by your savings due to lower rate. The time period during which your savings fully offset the costs is the break-even period.

You need to calculate the break-even period, so that you can occupy the property till then and recoup the costs. However, this is helpful in case of refinance transactions involving similar loans and wherein the purpose is to lower the rate and monthly payment.

The lender is likely to provide you with a Good Faith Estimate of closing costs within 3 business days of receiving your loan application. This helps you to trace any hidden cost so that you can avoid paying higher costs. So, if you don't receive the estimate, get one from the lender.

Do not depend upon the assessed value of your property as determined by the county tax assessor. The loan amount isn't based on the assessed value. Instead, it depends upon the appraised value of your property which real estate agents determine using either the Sales comparison Approach or the Cost Approach.

It's better not to agree to pay for a formal appraisal when you are aware that your home appraised value may be low enough.

If you think the appraised value of your home is low enough to get a good amount of loan, then you can ask the current lender to determine your home value by using the automated valuation model (AVM). This approach takes into account the value of similar homes in the neighborhood.

Thus, the appraiser gives you a range of possible home values, which will allow you to determine whether you can afford the home with the amount of financing that is available.

Check the loan doc before signing on them. Read the terms and conditions thoroughly before you accept them in writing. If possible, request the lender to allow you to read the papers in advance because you may not get enough time to go through all the docs at closing.

You can prevent unnecessary delays in closing if you submit relevant documents to your lender just when it's required. Otherwise, if closing is delayed, and mortgage rates go up, then you may have to choose the higher rate itself.

It's better if you can get the rate lock in writing from your lender. This written statement includes your interest rate, length of rate lock and other details of the loan program.

Lenders often require that a homeowner should wait for 6 months at least if he has taken cash out of home equity line of credit, prior to refinancing.

Moreover, if you withdraw money from your Heloc for anything except home repairs, and then go for refinancing, lenders would consider the first transaction as "cash-out". This is so because you've accessed your credit line. So, it's a good move not to pull out equity prior to the refinance.