Home > Mortgages > Refinancing? Why Your Bank May Not Be the Best Deal

Comments 0 Comments

Planning to refinance your house? Figure you’ll make it easy by opting to refinance through your current mortgage holder? If yes, beware of offers too good to be true. Here’s what you need to know about your mortgage holder’s offer.

Those who have refinanced or bought a home since 2008 know all too well what it’s like to get a mortgage. The questions, and the need document every aspect of the credit, debt, income and assets, while all very important, nevertheless make the process challenging.

You’ll Still Need Documentation

A common pitch given to consumers is “Since your loan is already with us, your loan process will be made much easier.” However, the reality is that regardless of whether you refinance your home with your current mortgage holder or with a different company, you’ll need to provide tax returns, W-2s, pay stubs and bank statements. Pre-2014, it was possible to provide lighter documentation for lenders originating and selling loans directly to Fannie Mae and Freddie Mac. But the rules changed Jan. 10, requiring lenders to prove a consumer’s ability to repay by having an appropriate debt-to-income ratio, as well as providing full supporting financial documentation. In other words, since all lenders are going to require the same documentation, it’s not necessarily going to be easier with your current lender. A history of making on-time payments is not a substitute for documentation. Your current lender does not store your most recent tax returns or last month’s bank statements, which are needed to complete a refinance — especially if you bank with another financial institution.

You’ll Still Need an Appraisal (Probably)

There are two programs presently in place for homeowners wishing to refinance without the need for a new appraisal. An FHA Streamline Refinance – which is paying off one FHA Loan in exchange for a new FHA loan with a preferred interest rate – does not require an appraisal.

The Making Home Affordable Program (aka HARP 2.0) specifically states on a case-by-case basis, if the loan being paid off was taken on before June 1, 2009, and the loan is owned by Fannie Mae or Freddie Mac, a borrower has the possibility of refinancing without an appraisal. Otherwise, in a traditional refinance a home appraisal is required to determine the loan-to-value and the borrower’s ability qualify for the mortgage.

A Decision-Maker Will Still Be Involved

Usually, the loan package created by your loan officer is reviewed by a decision-maker, an underwriter with the mortgage company to which you’re applying. The job of the underwriter is to mitigate risk for your mortgage holder, i.e. the lender.  In order to mitigate the possibility of loan risk they create conditions such as providing updated financial documentation, explaining a deposit in the bank account, for example, and sign off on those conditions for a final approval for docs to be drawn.

Whether you go with the new mortgage company or you stay with your current mortgage holder, your refinance request will be handled by an underwriter who will sign off on your ability to qualify.

A Level Playing Field for Rates & Fees

When it comes to closing costs, no lender has a monopoly on the market to create an unfair competitive advantage. Due to both mortgage and insurance industry regulations, closing costs rarely fluctuate among these neutral third parties. Closing costs vary in terms of what lenders charge in lender fees, origination fees and discount points.

Also, mortgage money comes from loans that are created, bought and sold on the secondary mortgage market. Lenders have access mostly to the same rates and programs, but fees vary among lenders. One lender cannot offer interest rates dramatically lower than market rate, however, loan programs do change the interest rate dynamic. For example, a 10-year fixed rate is always lower than a 30-year fixed rate.

When to Refinance With Your Current Bank

It may make sense to refinance your loan with your current mortgage holder if you have a previous credit challenge such as a bankruptcy, if you recently had or are near foreclosure, or there is a major income concern. In such circumstances however, you would likely not be seeking a refinance, but a loan modification. In recent years some homeowners have also been choosing to procure a loan modification in lieu of refinancing due to refi loan-to-value restrictions. Since the real estate market has picked up in most markets, refinancing is now a possibility for homeowners who previously were unable to do so due to a lack of home equity.

Why a Second Opinion Can Help

Procuring a second opinion from an outside lender against and your mortgage holder’s quote is always a prudent route to explore, even more so if you have steady employment, good credit and manageable debts.

Working with an expert loan professional could mean the difference between having a quick, efficient process with reasonable rates and fees and a process with a lender that cannot be guaranteed to go easily merely because they collect your mortgage payment each month.

[Editor’s note: Before you refinance your home, it can be helpful to check your credit scores to see where you stand. A lower credit score can mean a higher interest rate, which means higher monthly payments. If you need a higher credit score before you refinance, taking the time to build your credit can put you in a better position to receive lower rates when you’re ready to apply.  There are free tools that can help you monitor your credit scores, such as through a free account with Credit.com, which also provides an analysis of your credit to help you come up with a plan to build your credit over time.]

More on Mortgages and Homebuying:

Image: Karen Roach

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team