You may have read recently about how I was undertaking a no-cost refi so I could realize the best of both worlds (3 worlds really) – Lower monthly payment, no costs out of pocket and a shorter term on the loan. After all, mortgage rates just broker new records again (see rate table for your area) so I had to make something happen but didn’t want to spend a ton of dough. Well, I finally closed and I’m quite pleased with the final outcome, but along the way there were a ton of really annoying things I had to contend with. I’d be interested to hear if you’ve found similar hassles when doing a refi in this current environment of greater regulatory scrutiny:
- Explain Everything, and then some – I’ve refinanced probably 3 times now in the past 12 years and this was by far the most annoying. In the past, they wanted some basic W-2 info, credit checks and that was that. This time around, they were harassing my boss about “future employment prospects”, verifying my pay (even though I gave them copies of pay stubs), asking for the same documents multiple times and then most annoyingly, LOTS of questions around my side income ventures (see next bullet).
- Landlording is NOT Refi-Friendly – Initially, I didn’t even think this was going to fly. The initial info the mortgage broker gave me was that they’d calculate my debt/income ratio as if I were paying 100% of the mortgage amount on the investment properties and deriving NO income for 2 years. This, even though I have rental income and I’m not even 100% owner. I guess they assume the worst on all fronts – that we have no renters forever, my partner defaults and I don’t? Anyway, this would have taken me out of the running pretty quickly given the size of that deal, but eventually I explained that I have legal operating agreements, spousal joinders and all kinds of other documentation showing that I’m not fully responsible for 100% (not to mention, we’re profitable across all the properties).
- Constantly Signing/Faxing GFEs and Other Documents – I lost track of the number of documents I had to print, sign, scan and email back to them across the prior 2 months. I know it’s not the mortgage company’s fault so much and is part of the process, but this was hours of work and would have been even more if I had to use my own scanner with single pages. In many cases, it was dozens of pages each time. After providing all the info they requested from me, I kept getting different GFEs and regulatory documents to sign.
- Closing Costs/HUD Made NO Sense – This one was the most annoying to me. It’s a no-cost closing, right? So, that should mean all closing costs are just borne by the company. Well, in the end, they were “balanced out”, but it took forever to explain this and get there. I figured I’d go to closing with no money out of pocket. I actually needed a few thousand. Here’s why. First of all, I had to pay the remaining days in the months’ interest expense since my last mortgage payment was only covering up to the first of the month. Next, rather than showing the costs as such, they left all the different fees on the HUD form, like title fee, courier fee, notary fee, etc. and then on a different form, they had given a “lender credit” to roughly offset all those costs. So, when I got the final HUD and saw like $2000 extra required at closing and all the fees, it seemed like I was actually paying fees. But what I was really paying was the accrued interest payments for the remainder of the month. Oh, and I DID have to pay like $70 in fees from the departing bank (payoff loan). I called out the mortgage broker on that but he claimed they only guarantee us that all the closing costs on their end are covered by they aren’t responsible for (nor have any control over) costs to payoff the old bank loan and the fees they charge. I wasn’t going to quibble over $70 or so, but Citi charges $50 for a “final statement”? Really? $50 for a computerized printout? It’s a scam and everyone has their hand in the pot, but that’s the system. At least I didn’t end up paying all the stupid title fees and other thousands of dollars in typical closing costs out of pocket…
- Pay Next Year’s Taxes…NOW! (Why?) – I have a school tax bill of over $4000 that’s not due until September. However, as part of a closing requirement, I had to include that amount in a cashier’s check and have it at closing. So much for a no-cost closing. It’s not like I didn’t have to pay it eventually anyway, but why does a bank care if I pay my school taxes that aren’t due for months? I also found out about this requirement 2 days before closing, so thankfully I had a few thousand extra dollars in my savings account (because I intended on having this tax bill paid in the next couple months). This is what emergency funds are for, right? But it was pretty annoying that I had to pay it now, with little notice, and to me, with no rationale. I’m taking a bank loan to cover my mortgage and I don’t see how my tax bill is relevant. I am not escrowing and pay my taxes and insurance totally separately.
In the end, I got an awesome rate for now real money out of pocket that I didn’t have to pay in the near future anyway. I went from a 4.625% 30-year (27 years remaining) to a 3.75% 25-year mortgage. In doing so, my term has decreased by 2 years, I paid nothing out of pocket and my monthly payments drop by almost $100/month. For more on paying no closing costs and getting a lower monthly payment like this, check out this full explanation of no-cost refinancings.