When Grantham Myers, a wealth adviser with a large bank, decided to refinance his 3,000-square-foot townhome in Washington, D.C., in May 2012, he considered himself a prime candidate. His home was his only debt, his FICO score was 760 and he had been making a six-figure salary for the last several years. Myers thought for sure that he wouldn't hit any snags trying to refinance his 5.25 percent mortgage.
But as anyone who has even attempted a refinance recently will tell you, the process can be anything but smooth.
"Many things can go wrong," says Malcolm Hollensteiner, director of retail lending with TD Bank in Cherry Hill, N.J. "The documentation is not submitted in a timely manner, the borrower's income scenario is not illustrated in a clear and concise manner, the property appraisal can come in below the expected value, which means that the financing has to be changed to reflect the appraised value."
Lending conditions haven't let up
The refinance process can be relatively straightforward for homeowners with great credit, strong equity positions, full income and asset documentation, and long-standing employment. But unfortunately, few American homeowners fit this perfect mold.
Lending conditions have only gotten more restrictive in recent years, adding to the difficulty and time it takes to successfully refinance.
"You first go through regular underwriting within the bank, then there is another 48 hours added on to underwriting for a third-party review," says Gregg Busch, vice president of First Savings Mortgage Corporation in McLean, Va. When all is said and done, the refinance process could stretch out to 90 days, he says.
The reward can be worth the effort
Time was important to Myers when he was refinancing. According to Myers, one of the two large, national lenders he initially approached simply went on Zillow.com and entered his address to determine the current value of his home rather than sending out a local appraiser to examine his property. The second large, national lender he contacted didn't move fast enough for Myers, and each time he contacted them he found himself talking to a different person, forcing him to provide his financial details over and over again.
Frustrated with how the large, national lenders were treating him, Myers instead pursued a smaller, more local lender who he said was more flexible and was "able to move quickly." Myers refinanced his mortgage down to 4.25 percent, saving $300 a month.
"I am in the financial services industry and I hear how much trouble people are having dealing with banks," says Myers. "They make the process so difficult that you just quit."
Despite the frustrating process the first time around, Myers is going through the refinance process once again, trying to lower his rate to 3.5 percent. "Rates are not going to stay this low and I don't realistically see rates getting this low again in my lifetime."
Preparation prevents panic
Documentation and preparation were the keys to another refinancing in the nation's capital. Jane and Michael Duffy were thrilled to refinance the mortgage on the co-op they purchased in late 2001 in the Cleveland Park neighborhood of Washington, D.C.
"For us the incentive was to see how much we could reduce our monthly payment as we near retirement," says Jane Duffy. "As long as we were working with a bank that has a recognition agreement with the co-op, and the co-op accepted them as a lender, there was no problem."
Since the Duffys kept a close eye on their credit score for as long as they've had their mortgage, they didn't have to worry about a low score or credit error when it came time to apply for their refinance. It's a good idea to monitor your credit, fix any issues and know your score before you apply for a refinance so you know where you stand, says Jane Duffy. She also urges refinancing homeowners to keep all of their financial documents on file and readily accessible.
Financial preparation allowed the Duffys to smoothly refinance to a 3.75 percent rate in September 2012.
"Even though you are in the property and have already gone through the process before, you have to be prepared to provide as much documentation, if not more, than when you first bought the house," says Hollensteiner. "You need to approach the refinance as though you are buying the property all over again."
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Poonkulali Thangavelu is a financial writer who has covered real-estate finance topics for several years. Her work has appeared in leading industry publications National Mortgage News, National Real Estate Investor, Asset Securitization Report, Multi-Housing News and HousingWire. She has also been published on Seeking Alpha and Yahoo! Finance.