3.5% 30 Year Fixed No Closing Cost Refinance
We finally closed this week on our 3.5% 30 year fixed refinance with no closing costs (no closing costs = a credit from lender/broker large enough to offset refinance costs). It took us over 2 months (67 days from initial application/paperwork submitted) to close on this refinance, and there were times I really didn't think it was going to happen.
House Appraisal Came back Significantly Lower Than Expected
The first obstacle we ran into was a surprisingly low appraisal estimate. The estimate was so low that our mortgage balance far exceeded the 80% LTV threshold. We appealed the appraisal in hopes that we could nudge the appraisal value upwards a bit, but in the end no appraisal adjustment was made. As a result we looked at our options including PMI as well as a piggyback loan and in the end decided that we would deploy $31k of our savings to paydown the loan balance so we could move forward with the refinance.
The Lender was Incredibly Slow at Processing the Loan
It took over 2 weeks to hear anything back from the lender from the application/submitted documentation, when they initially asked for additional information. It then took an additional 2 weeks to hear back and have them begin to ask about some of the finer details which took another week of back and forth to make sure all the questions were answered, etc. Given where rates are I am not surprised that lenders are bogged down by the refinance volume, but at times I was suspicious that the lender was purposefully going slow to drag out the process in hopes that we wouldn't complete the refinance.
Once the lender start processing, there was round after round of followup required:
- Wow they actually read and more importantly understood all the documentation I supplied with my loan application. I've never gone through a loan application where the paperwork was actually reviewed in detail; previously I considered it more a formality in the process.
- I had to make a significant investment of time in explaining our family finances, accounts, and transactions.
- I was ask for documentation for every $500 or more deposit in our accounts for the 30 days before the loan application was submitted including photocopies of the checks I DEPOSITED into our account.
- The lender wanted to run a title search on my rental properties to ensure there were no additional undeclared loans/leans on the rental properties, even though the mortgage was on our primary residence.
The mortgage approval process was by far significantly more stringent than any loan approval process I have been through before. I had heard mortgage lending standards were higher and it was more difficult, but I was still surprised at how much work it took to get approval.
During this process I had to get our rate lock extended 3 times. I was frustrated that I ended up having to pay ~$360 for the rate lock extensions (ie. in less credit from lender at closing).
After we closed though I'm excited that we have finally completed the refinance (4.375% loan -> 3.5% loan). It makes a sizable improvement in our free cash flow (a $299/mo reduction in required min payments) which I believe will pay dividends long term when interest rates rise. I expect we will be able to deploy the cash saved in higher returning investments in the future.
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