We often see borrowers who are reluctant to refinance into a lower rate – even when the new loan will be “no cost” and save them hundreds of dollars every month.
Unfortunately, this reluctance is sometimes fostered by the stress those borrowers endured during their purchase.
As a result we like to emphatically remind everyone that refis are far easier than purchases!
Here are some of the reasons why refis are so much easier:
- Fewer Parties. A refi involves only the borrower, the lender, an escrow officer, and an appraiser (sometimes). Purchases, in contrast, also involve a selling agent, a listing agent, and numerous inspectors.
- No EMD On The Line/Less Risk. If a refi dies for any reason, there is no risk of losing anything, including an EMD. We often reimburse appraisal fees too if we encouraged the refi and the appraisal comes in lower than we expected.
- Appraisals Are Easier. Appraisals are easier for a few reasons. First, we are seeing more and more “property inspection [appraisal] waivers” for conforming loans. Second, “streamline” refis for FHA and VA loans require no appraisals and minimal other documentation. And third – appraisers are much more likely to correlate to the purchase price after a transaction has closed – so the risk of coming in under the contract price is much less.
- More Time/Less Rush. Borrowers often have to offer “fast closes” to entice sellers to accept their offers. This of course can add a lot of stress, particularly for our 14-day closes, as time is always of the essence and everything is a super-rush. In contrast, we often lock our refi interest rates for 45-60 days, allowing for a much more relaxed approach. CAVEAT: Borrowers sometimes take their “refi-relaxation” too far and don’t respond fast enough, despite the longer timeframe, causing us to lose our locks or to pay for very expensive lock extensions.
- Less Sourcing Of Funds. This is probably one of the biggest factors of all – ever since the 2008 financial crisis. To avoid fraud, lenders are now forced to verify the source of every dollar that goes into every purchase. And given the huge quantity of funds that go into many transactions, this process can often be very difficult, as all funds need to be “seasoned” (in the account for over two months) and all large deposits on the various statements need to be explained. In contrast, refis usually require minimal amounts of cash to close (or none at all if the loan amount is increased), and that makes the sourcing of funds a much easier proposition.
- Far Less Documentation. When borrowers return to the lender that financed their purchase, that lender will still have most of the necessary documentation required for the refi – including the entire loan application and most of the income documents. B/c of this, refi documentation requirements can be much less onerous.
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
