|Palo Alto Online Real Estate
Uploaded: Thursday, April 19, 2012, 4:34 PM
Research, then refinance
Be prepared for a nit-picking process
|When Midtown Palo Alto residents Aviva and Ben Saitz successfully refinanced their house in fall 2011, they were able to take advantage of interest rates that are dramatically lower than they were three years ago.
"We ended up saving like $200 a month," said Aviva Saitz, whose interest rate dropped from about 4.4 percent to 4 percent. "But I was surprised; it was equally as cumbersome in terms of paperwork as it was buying the house."
The increase in paperwork is a byproduct of heightened regulation in the industry after the financial crisis, said Sheryl Klein, owner and broker at Crescent Capital in Palo Alto. But Klein said there are benefits for borrowers that come with the extra scrutiny.
"I think there's a lot more transparency for them even though it's a little more cumbersome for us," she said.
Anti-steering rules prevent loan originators from "steering" borrowers toward a particular plan that might be most beneficial to the originator. By using intermediary appraisal-management companies, contact between brokers and appraisers has been limited to stymie any unethical influence on the appraiser a broker might have.
Christine Kani, a private mortgage banker with Private Mortgage Advisors LLC, said the people who probably benefit the most from refinancing are those who will stay in their houses for some time.
"If they did a financing event even a year ago, chances are it's worth an investigation," she said. "A lot of things can happen and they're looking at dropping potentially 2 percent. For people who haven't done anything for four or five years that's kind of the delta."
Even with low interest rates and newer regulations, Samira Kolia, senior vice president, homes sales manager at Bank of America said it's important for borrowers to be familiar with the ins and outs of the refinancing process, particularly in the Palo Alto area, where the average mortgage loan is more than $500,000.
Borrowers should first consider their goals and what it is they are looking for in a loan in relation to their future plans. Those who are going to be in their house for a short period of time will have different priorities than those who are hoping to retire in their house, said Klein.
"A good loan officer is going to ask you about your 5- to 10-year plan and your personal and economic situation," she said.
Saitz and her husband refinanced through Bank of America, the bank with which they had an existing relationship, but another Midtown resident who asked not to be named said she found success by shopping around.
"I'd really recommend to check Google and Yelp," she said, referring to the online review website. "People who have had really good experiences will sometimes write about them."
The resident said she was able to decrease the interest rate on her 30-year fixed loan from 4.15 percent to 2.75 percent.
A major part of the process is appraising the market value of the borrower's home. Kani said the use of appraisal-management companies has broadened the range in which an appraiser might work.
"They do it regionally, but our region might extend all the way east of Pleasanton," she said. "And you have no control over who's going to do it."
Klein said appraisers unfamiliar with the local area can work against borrowers. "Sometimes there are nuances about a particular neighborhood that the appraiser might not be aware of if they don't live here," she said.
To counteract this, Kani will sometimes advise clients to order a 48-hour rush appraisal of their home, usually at the cost of an administrative fee. This tactic increases the chance that the borrower will get an appraiser familiar with the area, because few appraisers will want to drive hours to a location, drive back, and then file the report within a 48-hour time span.
Borrowers should be prepared to have all of their financial information closely scrutinized by the lender before the loan takes place. Saitz said the level of detail her bank went into surprised her, checking for details from even small deposits into her family's account. Klein said it's best not to take this part personally.
"Realize it's not just you," she said. "It's everyone who has to do this, and it's a result of the mortgage crisis and all the loans before where people had to provide less documentation."
Kani said this part of the process can be particularly difficult for the self-employed, many of whom are able to reduce tax burden by writing off a significant number of costs as business expenses. While this strategy saves money in taxes, it can be problematic in attaining a conventional loan.
"Those people who are preparing their taxes should consider not writing as much off so that they can fit into a particular qualification, and after they refinance go ahead and write off what you want in the following year," she said. "Collaborate with your broker and your CPA, and your CPA might say that you should pay more taxes and in the end you should come out ahead from the refinance."
Borrowers should be sure they understand their good-faith estimates -- the document that contains all costs associated with the loan -- in minute detail, said Klein.
Excessive closing costs and other fees might counteract or render useless the savings from a refinance.
"With no points and standard closing costs, my rule of thumb is that your rate should improve by at least half a percent," said Kani. "If there are no costs whatsoever, even just reducing your rate by just a quarter can be worth it."
Klein said one of the main things she does is encourage people to ask a lot of questions.
"If something doesn't make sense, then find out about it," she said. "It's one of the biggest financial decisions people make and an educated borrower is the best kind of borrower."
-- Editorial Assistant Eric Van Susteren can be emailed at email@example.com.
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