So we met with our LO today to sign all of the loan disclosures (all 69 pages of them) and our closing costs are a bit higher than expected. Our LO said that we could take a higher interest rate and get a credit back on the loan origination amount, which would be less money to the table. We could then refinance in a few months when my credit is a bit better.
Does anyone have any opinions on whether or not this is a good idea?
Thank you so much!
Starting Score: TU 589 EQ 526 EX603
Well we aren't locking right now, but if we did, it would be 4.5%. Our LO said that if we lock in at 5%, we can get a $2600 credit back in closing. FGMC is making me pay off two medical collections at closing which equal $2300, so that $2300 is on top of all other costs. It will increase our loan payment an addition $30 per month, which is just fine as far as payment goes.
She said it won't cost anything to refinance in a few months because we won't be pulling any equity out so no need for an appraisal, and they will credit back the refinance paperwork in the loan, just a streamline refinance to lower our interest rate. Our rate is a bit higher due to the lower credit score so she said it would be helpful to refi... She said we will save thousands to get the interest rate down to 4%...
@StartingOver10 wrote:
@Catacam wrote:So we met with our LO today to sign all of the loan disclosures (all 69 pages of them) and our closing costs are a bit higher than expected. Our LO said that we could take a higher interest rate and get a credit back on the loan origination amount, which would be less money to the table. We could then refinance in a few months when my credit is a bit better.
Does anyone have any opinions on whether or not this is a good idea?
Thank you so much!
I agree with the other posters above, that you are taking a chance by taking the higher interest rate to get the lender to pay some of their fees. The higher interest rate is a long term issue as opposed to coming up with the additional fees one time at closing. It is not guaranteed that you will be able to refinance "in a few months". (Just ask all those people that are underwater now what their loan officer said when they signed for some of those wacky loans available in the mid 2000's.) Also, did the LO put in writing that there would be no closing costs whatsoever to you in a refi? Or is she really saying there would be no additional lender costs? Be careful, if it's not in writing, it doesn't exist.
In my opinion I would be shopping other lenders right now to get a competitive rate on today's market so you can do the math and make an informed decision based on your credit file.
+1. Of course you may have already shopped it around, but if not, definitely do so. I was able to get a lender credit but the rate was also better than I was getting elsewhere, so it was good on both fronts. Last month, I locked at 3.75% with a .875% lender credit. At the same time, most other lenders I talked to were just offering 4% with no credit, one person was willing to go 3.875% but still no credit.
@MBOhio2 wrote:I can tell you all that Catacam has shopped around, but like me, she has sub-620 scores so it's slim pickings and unfortunately, the going interest rate with sub-620 scores is in the 4% range.
Wasn't paying attention to the scores. In any event, those are still great rates. Unheard of until very recently.
@Catacam wrote:Well we aren't locking right now, but if we did, it would be 4.5%. Our LO said that if we lock in at 5%, we can get a $2600 credit back in closing. FGMC is making me pay off two medical collections at closing which equal $2300, so that $2300 is on top of all other costs. It will increase our loan payment an addition $30 per month, which is just fine as far as payment goes.
She said it won't cost anything to refinance in a few months because we won't be pulling any equity out so no need for an appraisal, and they will credit back the refinance paperwork in the loan, just a streamline refinance to lower our interest rate. Our rate is a bit higher due to the lower credit score so she said it would be helpful to refi... She said we will save thousands to get the interest rate down to 4%...
I wouldn't hold my breath on that one. There is still going to be closing costs involved in the refinance even if you don't cash out.