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Don’t make this mistake when refinancing

If you’re going to refinance your mortgage, it can help to lessen the interest rate of your loan or monthly payment, access some of your home’s equity, or adjust your loan program. The procedure of refinancing a mortgage is the same as the one you go through to acquire your mortgage loan in the first place.

refinance

Refinancing a mortgage is where you apply for a new home loan to replace your current one, where you have the option to withdraw a portion of your home’s equity as cash in the process. In case you can refinance into a loan option with a lower interest rate than what you’re presently paying, you might be able to save money on your monthly payment and the overall cost of the loan. When refinancing a home in downtown Boston, it’s essential to learn first the basic steps involved in the process.

Let’s check out several steps to refinancing your mortgage, to get the most out of the benefits that the process offers:

  1. Check Your Credit

When you have good credit, it brings you several perks. If your credit score has improved since you got your first mortgage loan, it may boost your chances of gaining a lower interest rate than what you’re presently paying.

Before starting the application process, check your FICO score to understand your current standing. Once you’ve determined your FICO score, check out the score range to see your status below:

  • Exceptional – 800 to 850
  • Very good – 740 to 799
  • Good – 670 to 739
  • Fair – 580 to 669
  • Very poor – 300 to 579

The majority of mortgage lenders can approve your loan application if you have a score of 620 or higher, but scores in the mid-700s and higher will have the best chance of getting a low rate.

  1. Determine The Target Rate

The mortgage interest rates fluctuate daily. With various updates, it’s vital to do your research on the latest rates and trends. Even if the interest rates are lower than what you have, it does not necessarily mean that you can save money. The reason is that, similar to the initial mortgage process, refinancing includes closing costs that can range from 2% to 6% of the loan amount.

You should find a target interest rate where you can gain interest savings equal to or higher than your closing costs.

  1. Look For A Qualified Lender

Take time to look for an excellent lender to score a lower interest rate on your new mortgage loan. Every lender has their criteria for determining the interest rates, and you might qualify for a lower rate with one lender than you would with another.

The closing costs and fees also fluctuate from one lender to another. It’s best to compare several options to make the most out of your savings. Obtain at least three or four quotes to have a good idea of what you can gain. The process can help you to achieve the upper hand in negotiations if you’re seeking to lessen the costs of interest and fees.  

  1. Be Patient When Signing A Mortgage

As a big financial commitment, it’s crucial to take time to carefully read the terms of your new contract before signing a mortgage loan. Besides understanding the fees, you should also determine whether you’ll get a prepayment fine if you pay off too early. Take note that this can happen if you refinance again or if you sell your Boston condo.

Do not forget to read all the contract clauses, so that you fully understand the contract’s scope with the new lender.

  1. Avoid Opening Any Form Of Credit During The Refinancing Process

As your mortgage refinancing continues, it’s vital to avoid applying for new credit cards or loans. Since the mortgage lender will assess your credit at the time of application and prior to closing, you should steer clear of opening credit accounts during this period.

If you plan to apply for a new credit card or auto loan, it might be best to stand by until you’ve closed on your refinance loan.

Boston Real Estate and the Bottom Line

Refinancing a mortgage might seem like a simple process, but it involves several moving elements, including the costs and the potential for savings.

The best move you will make is to avoid rushing the process. Take your time to look around for options, and decide whether your choice is suitable for your needs. Once your credit has improved but still has room for more improvement, you’ll get the chance to refinance in the future again. Now that you’ve gotten a closer look at the steps involved in refinancing a mortgage, it can serve as a guide, so that you’ll make the right decisions along the way and you won’t be stuck for answers.

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Q: I refinanced my house and the title guy had me sign a quitclaim and deed of trust. He said because I had my married name on the title, it needed to be put in my maiden name.

Should I be worried? I didn’t get copies of what I signed.

A: You should contact the title company immediately to get copies of all of your documents.

After you close on the purchase of a property or complete a refinance, these documents are often collected into what is known as a “closing book.” You should keep these documents as a record of the transaction should something go wrong.

But let’s get to the stranger part of your letter. You didn’t include any information about being divorced, but the only legitimate reason I can think of why you would need to execute a quitclaim deed from your married name into your maiden name is if you have been divorced and you have gone back to using your maiden name.

By executing a quitclaim deed, you are essentially transferring any ownership interest you have in the property to yourself.

If you have not been divorced, then you should start to investigate what has happened and make sure you understand the transaction.

Which brings me to an important point: No one should ever sign his or her name to a legal document without understanding exactly what the document says and what the transaction is all about. I know that mortgage documents can run several dozen pages, and that you have to initial each page. But by initialing each page, you’re certifying that you have read and understood what each page says.

If you don’t understand what is on the page, then keep asking questions until you do understand.

Q: My husband and I are divorcing. He is refinancing our property and buying me out. He says I will get the check two or three days after signing the quitclaim deed.

My local bank says normally there is just an exchange of signing and money at the same time. He is financing at a federal bank. Does this make a difference or is there something else going on?

A: Whether you’re working with a local bank or national mortgage lender, when you refinance your primary residence, there is a three-day right of rescission. That means you have three business days to cancel the transaction. So, it’s possible that your husband won’t receive the funds until three business days after the transaction closes.

But you have to protect yourself as well. I wouldn’t just hand over the quitclaim deed and trust that your soon-to-be ex-husband will come through with the cash. What you might do is deliver the quitclaim deed in trust and give the escrow company specific instructions not to hand over the quitclaim deed until your check has been received. That should protect your interests.

The problem is that many escrow or title companies won’t do this. If they won’t, then you should refuse to sign over the quitclaim deed until you have a check in hand.

Please consult a real estate attorney for further details or other ideas on how to handle the situation.

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