My husband and I closed on our refinance this week. It’s a 15-year fixed-rate loan at 3.75 percent.
Although we’re only going to save about $50 per month from the 15-year, 4.25 percent loan we closed on last November, I couldn’t pass up the opportunity to get a loan at this interest rate.
It feels a little like free money, and after our mortgage interest deduction (assuming we’re still able to qualify for it), it will be as if we’re paying almost nothing to borrow these funds.
But the best part about refinancing again was to see some of the new rules the Department of Housing and Urban Development (HUD) has put in place in order to help shut down the financial fraud that has permeated the world of mortgage financing.
As for making the process more understandable to consumers? Having just gone through the process, I’d say there’s a lot more work to be done.
What can you expect when you’re closing on your mortgage loan? Here are some of the highlights from our own loan closing:
• Expect to sign your name or initial every page. Our loan package (the collection of loan documents, disclosures, tax forms, etc.) was more than 80 pages long, I think. We had to sign just about all of the documents and, in some cases, we had to initial virtually every page of the document.
• Expect at least some of your information to be incorrect. Although the title company had access to much of my information, and other identifying information, my name was spelled incorrectly (several different ways) across the loan documents. On most pages, I simply corrected it, but that required me to initial next to the changes in addition to initialing the page at the bottom. But then we got to the HUD-1 form (the closing statement) and my name was spelled incorrectly there. And, that caused a little bit of a snag, since you can’t change anything on the HUD-1 form (ostensibly to protect the borrower). We signed the forms anyway, and the title company was going to redo the first two pages of the form and then attach the signature page. Of course, the fact that the title company can make that switch is a huge red flag and an opportunity for fraud.
• Expect the numbers to be wrong. After we had signed all the documents, we noticed that the final numbers didn’t match up. We had to work through the numbers with the loan broker to make sure that the numbers were correct. In our case, the amount that was listed for the payoff of our prior loan differed from the amount set forth in the letter from our lender. You should watch out for the key numbers, which are the interest rate, total loan amount, and costs and fees. Those should all match up with the numbers you were given.
• Expect to go to a plain vanilla room in a leased office somewhere. Due to the prolonged housing crisis, many title companies have gone out of business, or simply closed their offices. Today, it’s common to have closers meet at a rented office facility to sign and notarize documents. This feels strange and vaguely like you’re committing fraud – but you’re not. It’s just that title and escrow companies can no longer afford to have nice digs of their own in all the places they used to have them, or the people to staff them.
• Expect to be confused by the “new” HUD-1. On the new HUD-1 form (the closing statement, lenders are supposed to be exact on their charges and fees. They’re not supposed to come in more than 10 percent over what you’ve been quoted on some of the fees (but not all). Great. In our deal, that meant the title company charged us a flat $90 to file all paperwork (the actual cost would have been around $140). Watch how these numbers work and be sure that they match what you’ve been promised – or that you at least understand what is included. These days lenders overestimate the fees to avoid blowing the figures. In some cases, if the mortgage lender blows the figures and those figures come in higher than previously disclosed, the lender has to pay the difference. In other cases, if the fees come in too high, the closing is delayed and the lender must give you a new HUD-1 disclosure statement and you’ll have to wait about a week to reschedule the closing.
My sense is that the HUD-1 is a little better, but overall, financing and refinancing a home is confusing. You can initial all the pages you want, but if you don’t read the document (and the title or escrow officer won’t have budgeted time for you to spend an hour or two reading those 80 pages), you’ll never know what’s in them.