Refinancing? Here are 3 things your lender owes you
As a mortgage refinance customer, you are entitled to understand exactly what you are getting into, assistance in selecting the best mortgage products, efficient and respectful service, and accurate disclosure of loan terms. Here are three important things that your lenders owes you when you refinance.
1. Good Faith Estimate (GFE)
As of January 1, 2010, mortgage lenders are required to furnish refi customers with a new Good Faith Estimate (GFE) showing all the costs involved with getting your loan, the available mortgage rates and pertinent features of the mortgage like (e.g. prepayment penalties and negative amortization). When you close on your mortgage, your actual closing costs must largely match the costs disclosed, and non-allowed overages must be absorbed by the lender. Lenders are not required to issue a GFE to people when they shop for a mortgage, only when they actually apply for a loan. However, one of the purposes of the new GFE is to make loan shopping easier, so many lenders will supply the disclosure upfront if you ask for it.
Why would a lender refuse to provide a GFE? Some choose to play it safe and offer people "loan scenarios" or "worksheets" instead, but understand that these documents are non-binding, unlike a GFE. In fact, one writer in a lending industry publication advised lenders to put off providing a GFE as long as they could to make it harder for borrowers to shop for the best mortgage rates. So, when shopping for a refinance, insist on getting the actual GFE upfront, and don't work with lenders that refuse to provide it.
2. Communication
Ask any representative you speak with how he or she communicates with clients (he or she should be willing to communicate with you based on your preferences, whether email, phone, fax or text). Ask how quickly you can expect phone calls or messages to be returned; in most cases it should be within an hour. Your lender should ideally avoid mortgage jargon and be willing to directly answer any of your questions. Your lender should know the characteristics of different loans and be able to easily say why he or she recommends a particular product to you for your refinance.
Your lender should ask you questions as well. He or she should want to know the approximate value of your home (to estimate its equity) and how long you plan to keep the property. He or she should ask if you expect lifestyle changes like an expanding family, retirement, college, a new business or other events that can influence the type of mortgage that best suits you. He or she should want to know what you hope to accomplish with your refinance transaction -- lower interest rate, lower payment, extra cash, shorter term?
3. Basic service
If a mortgage representative hands you a pile of forms to fill out and leaves you there, you may wish to consider another lender. Quality service includes having someone interview you, take your answers down and complete the mortgage application form with you; in general, you should only have to review and sign the documents. In an ideal setting, you verbally complete a mortgage application, your loan is underwritten electronically, you get a decision and a list of documents to send or fax, your home is appraised, and you sign your closing documents.
Your lender should have your loan documents available for you to go through in the privacy of your own home before closing if you want to. There should be a representative with you at the loan's closing or available by phone to answer any last-minute questions.
Expect the unexpected
Almost no mortgage transaction goes off glitch-free. It's a complicated process, and there are many variables that a lender, no matter how capable, has little control over. For example, your septic tank may have not been inspected in years. Your bank statement might show a couple of bounced checks. Your credit report may contain a batch of inquiries or inaccuracies that need explaining. A good lender should tell you why something needs an explanation, documentation or a complete fix (like a tax lien that must be discharged) before you can close on your refinance. You should realize that no lender asks for anything from you if there is a way to avoid it; no one likes to make the process any more difficult or time-consuming.
Good documentation, good communication, good service and managed expectations mean that you'll have a more trouble free refinance.
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