Refinancing my mortgage was a challenging process, especially during the pandemic when the industry was tightening due to increased unemployment and rent moratoriums. Here’s what I learned from my experience, which might help you if you’re considering refinancing.
After nearly four months of effort, I finally managed to refinance my mortgage to a lower rate, dropping from 2.625% to 2.375% on a 5/1 jumbo ARM. This process, which once took about 30 to 60 days, now often extends beyond three months due to stricter lender scrutiny.
One critical issue I faced was the stringent underwriting process. Despite significant earnings as a consultant, my income wasn’t fully recognized by the banks until I had completed two years in that role. This is a crucial point for freelancers or those considering leaving stable employment: secure your refinancing before you switch to less consistent income sources.
The major hurdle was my debt-to-income ratio; initially, it was too high to refinance the full amount I needed. The bank told me I could only borrow up to $800,000 unless I could improve the ratio. Instead of paying down a substantial portion of my mortgage to meet their requirements, I negotiated with my employer to increase my salary, which allowed me to refinance a larger amount. Eventually, I compromised by paying down $130,000 to refinance $850,000, which was a middle ground that allowed me to maintain substantial liquidity.
This experience taught me several key lessons:
1. Negotiation and Compromise: Don’t accept the initial terms if they don’t work for you. There’s often room to negotiate with lenders, especially if you can improve your financial standing or offer a substantial down payment.
2. Employment and Income Flexibility: Stability in income is crucial for refinancing. Sudden changes, especially reductions in guaranteed income, can jeopardize your eligibility. If you plan significant income changes, it’s better to secure your refinancing first.
3. The Benefits of a Longer Refinancing Process: While a lengthy process can be stressful, it also provides more time to adjust your financial standing and negotiate better terms. Use this time to your advantage.
4. Strategic Financial Decisions: Paying down principal can be a strategic move, especially if it results in better loan terms and a lower interest rate. However, ensure you maintain enough liquidity to handle other financial needs.
Refinancing your mortgage can be a complex and prolonged process, but with the right strategies and a bit of flexibility, it can lead to significant long-term savings. Always be prepared to negotiate and explore different options to secure the best possible terms.
