Mortgage refinancing applications have surged in the U.S. as the coronavirus outbreak continues to unfold. While some borrowers play it safe, others are rushing to take advantage of low rates.
As safety becomes a priority in times of economic uncertainty, more and more homeowners are looking to refinance their mortgages. According to the Mortgage Bankers Association, refinancing applications surged 79% in the first week of March compared with the week prior, marking the largest increase since November 2008.
Moreover, mortgage loan applications spiked, hitting the highest number since April 2009. Average jumbo loan rates decreased to 3.58%, reaching their lowest since 2011, while average conforming loans reached 3.47%, the same level seen in December 2012.
Various factors determined falling mortgage rates. U.S. Treasury notes dropped significantly, hitting a historically 10-year low as the 30-year mortgage rate plummeted to 3.29%. Moreover, the Federal Reserve cut interest rates to almost zero, the new rates ranging from 0% to 0.25%. The Fed announced it will buy at least $500 billion in U.S. Treasuries and at least $200 billion in mortgage-backed securities to help stabilize the housing market.
With more homeowners looking to refinance, lenders have a hard time dealing with the increased number of applications. Greg McBride, chief financial analyst at Bankrate.com told USA Today:
“There’s a traffic jam to get on the mortgage refinancing highway. Lenders have been inundated with refinancing applications. If you’re looking to refinance now, you’re in for a long wait. Mortgage rates are going to stay very low for awhile, so this is the one time when waiting may actually work to your benefit.”
To secure rates, borrowers will have to be dynamic and move fast as the process is slowed down due to overwhelming demand. The Wall Street Journal shares how borrowers can prepare if they want to refinance their mortgage.
Freezes became free in 2018, allowing consumers to protect their credit files from fraud. However, in order to refinance your mortgage, you will have to lift the freeze. You can request to lift the freeze by using the credit bureaus’ online or automated phone systems. In some cases, you might have to send a request by fax or email along with an attached identification document.
Get Appraisal Ready
As the lender will have to evaluate your home, it shouldn’t be under construction when the time comes. Home improvements should be done either before or after the lender’s appraiser evaluates your house.
If the home is under construction, the appraiser will have to submit an “as is” appraisal, reducing home value by the amount of work that remains to be done or a “subject to completion” appraisal, which will require the appraiser to evaluate the home again once the work is done.
Call Your Accountant
Considering the lengthy process, it would be better to have a discussion with your accountant soon after you decide you want to refinance your mortgage. Alan Rosenbaum, chief executive at GuardHill Financial, mentione that self-employed people will need a year-to-date profit-and-loss statement prepared by their certified public accountant which is usually time-consuming. In addition, ask for digital copies of your last two years of business and personal tax returns to speed up the process.
Examine Trust Documents
If the title of the home is held in a trust, make sure you have a digital copy of the trust to forward to your broker or lender. Some lenders request a copy of the whole trust, while others only need certain pages. Make sure there are no typos or mistakes.
Go on a Credit Diet
If you want to apply for a refinance, don’t take on new debt until you finalize the process. On one hand, it could affect your ability to qualify. On the other hand, it takes time for the lender to verify the new source of debt and make new debt-to-income calculations.
While the refinancing process normally takes 30 to 45 days, with the current situation it can take between 60 and 90 days to close the deal. Therefore, planning ahead is key in securing a mortgage refinance. It remains to be seen where the housing market is headed given these unprecedented times.