Window to refinance might close quickly

WASHINGTON -- An expected wave of refinancings failed to materialize earlier this year. But in anticipation of further rate cuts by the Federal Reserve Board, lenders are girding once again for a mini-boom in the coming weeks. The question is: Are you going to be ready?

The window may open and shut so quickly that you might have to move at warp speed to take advantage of lower loan rates. Consequently, it will pay to have your ducks in order when and if the opportunity presents itself.

For starters, realize that qualifying for a new mortgage probably won't be as easy this time as it was just a year or two ago. Back then, lenders were falling all over themselves to get your business and frequently looked the other way when qualifying marginal applicants. Now, though, they are being far more careful -- and picky.

With that in mind, now is the time to obtain copies of your credit report from the three major credit repositories -- TransUnion, Equifax and Experian.

You are entitled to a free credit report once a year from each agency. Go to annualcreditreport.com or call 877-322-8228.

Don't worry that the three reports don't match, line for line. The repositories take information from different trade lines, so they won't be exactly the same.

It's more important to scour the reports for erroneous or damaging information, and if you find any, get it corrected or removed. And do the legwork early because the process could take several weeks.

If you have any problem accounts, get them resolved. Getting charge-offs, liens and late payments off your record "will have an immediate and positive effect" on your all-important credit score, advises Bruce Brown, president of the First Security Mortgage Co. in Kansas City, Mo., and a certified mortgage-planning specialist. "Small differences in a score can mean big differences in interest rates or fees."

Next, you'll need up-to-date documentation of your wages, savings and other assets.

To prove you earn what you say you do, you'll need your last three pay stubs. No more stated-income loans in which the lender takes your word for it.

Now, if you say you make $5,000 a month, you've got to confirm it.

If you are self-employed, the lender will want to see signed copies of your last two tax returns and a current profit-and-loss statement, preferably, although not necessarily, one signed by an accountant or your tax preparer.

Also have at the ready the last two years' tax returns for your business.

You'll need some cash, too. You won't be making a down payment, so you won't need as much cash on hand as the last time you took out a mortgage.

You won't be paying the full complement of closing fees, either. But you probably will be paying discount points, origination fees and other costs.

Some charges may be lower than the last time around. Title-insurance policies, for example, are often priced up to 70 percent lower when the same company that wrote the original policy reissues them.

You should receive an estimate of your closing costs when you apply for your new loan, so you'll get an idea of exactly how much money you'll need.

But remember, these figures are subject to change -- and frequently do -- so try to be prepared to pay more than you thought you would.

If you are short on funds, though, you may be able to roll the charges into the loan amount.

While you are at it, determine whether your old loan has a prepayment penalty. If it does, you can pay it from the equity you have in the house. But if it's only been a year or two since you took out your current loan, you may not have enough equity to cover the penalty. In that case, you have to either pay the fee in cash or add it to the new loan's balance.

You'll also need to show that you have enough money in your savings account to cover at least two monthly payments.

And if you own other real estate -- a couple of rental houses, for example -- you'll need to furnish copies of your current leases and perhaps even the names and phone numbers of your tenants so the lender can make sure that the leases are legit.

The lender will want a list of current debts, including mortgages on your other real property, car loans and credit-card accounts, with account numbers, plus a list of your checking and savings accounts with the account numbers and the names and addresses of the institutions they are with.

Lenders have become very concerned about fraud lately, so you'll have to prove you are who you say you are. To do that, you'll need a photo ID and a copy of your Social Security card. If you are a foreign national, you'll have to prove you are in the United States legally.

Another issue for lenders is proof positive that the house is worth what you say it is. Since there's no sale taking place, your lender won't have a contract between you and the seller to use as a benchmark. But even if there was a contract, the lender will order an appraisal.

Here, you can help yourself by doing some legwork on your own by finding properties similar to yours that have sold within the past six months.

The properties must be comparable -- in the same or nearby neighborhood, the same number of bedrooms and baths, and so on down the line.

You might come up with the same properties as the appraiser.

But you might find different ones, and you need to be armed and ready if the value of properties the appraiser uses are not as great as the ones you have uncovered. Many appraisers will be happy to look at properties they might have missed, especially if they are truly comparable.

Finding your own "comps" is particularly important if values in your area have been falling.

Some investors that purchase mortgages on the secondary market from local lenders are requiring a .25 percent interest-rate surcharge on loans in declining markets, so you want to try to show that values are not down.

Once you have your package together, get it to a mortgage professional, a broker who has his fingers on the market and can send to a funding lender at a moment's notice.

"The market is so volatile today that we've seen rate swings of three-eighths to a half-a-point in a single day," Brown said. "We've had instances where we called a client at 9 a.m. with a favorable rate that was gone when he called back two hours later."

Your best bet, of course, is to start with your current lender, which won't want to lose you, especially if you've been a good payer. Often, your lender will offer a discount or a streamlined approval if you agree to stay.

But you can't count on your current lender to offer the best rates or terms. So it's smart to talk to several lenders before pulling the trigger.

Lew Sichelman has been covering real estate for more than 30 years. He is a regular contributor to numerous shelter magazines and housing and housing finance industry publications.