13 tips for a successful refinance

1. Just do it.

Greg Cook, a first-time-homebuyer specialist in California, says homeowners who are thinking about refinancing get in the "I've got to have the lowest rate ever" mode and keep delaying getting started.

"If you've decided to refinance, find a local lender you can trust, get an estimate of costs and an interest rate in writing, then do it."

He says homeowners need to know that rates change daily and that there is no guarantee that the rates will get better tomorrow.

"I've always told my clients that interest rates will do one of three things: They may go up, they may go down, they may stay the same, but in only one chance in three will you get better than what is available today. It's your money, how much of a gambler are you?"

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2. Check your credit.

"Check and make sure all of your credit reports are accurate before doing anything else," says Chris Moyer, a sales associate with Jack Gaughan Realtor ERA in Pennsylvania. "If they're not, address it ASAP."

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3. Get a referral.

"In my opinion, a borrower who comes to a lender through a referral usually gets a little bit more attention," says Deb Tomaro, a real-estate agent with Re/Max Acclaimed Properties in Bloomington, Ind. "That doesn't mean using your barber's cousin's baby-sitter who just started doing loans. That means getting advice from someone who has recently used the lender and had a good experience."

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4. Shop around.

The best way to shop around for a refinance is to compare the mortgage rate, fees and annual percentage rate of at least three companies, says Bree Witt, public-relations manager for Guaranteed Rate. 

"Getting the best rate isn't entirely dependent on your personal finances and a good credit score, so shop your mortgage around to multiple lenders to determine rates and refinancing fees," she says.

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5. Don't forget about fees.

"Be sure to look at the fees as well as the interest rate," Georgia real-estate agent Norris Bishop says. "For instance, a lender may quote you a really low rate, but he may be charging you discount points for a rate buy-down. If the lowest rate is going to cost you higher fees, you need to take this into consideration."

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6. Research the mortgage company.

Before you decide to work with a mortgage company, do a background check, says Anthony Casa, president of Garden State Home Loans.

"The Internet is a powerful tool," he says. "Consumers who have had a good experience with a company are eager to provide a positive review for them, and consumers that have had a poor experience with a company are even more eager to share that experience with others. The Better Business Bureau exists for a reason; check out the rating and number of complaints associated with the company you are considering working with."

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7. Gather all of your paperwork.

You'll need to track down a lot of information for the refinance application, so make sure you are prepared with everything you might need, says Peter Ruggiero, director of KeyBank Mortgage. That will likely include at least the following:

• Social Security numbers and dates of birth for all borrowers.
• 24-month personal residence history.
• 24-month employment history including name, address and phone numbers of employers.
• Copies of pay stubs for the past 30 days.
• Copies of W-2s for the past two years.
• Bank statements for the most recent two months and most recent quarterly investment statements.
• Evidence of any additional income you wish to include on your application, such as child support or alimony.
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8. Prove your home's worth.

Have supporting data to prove your home's value, along with a list of upgrades and updates completed, says Lisa Johnson Sevajian, an Andover, Mass., real-estate agent.

"Never assume the appraiser will recognize what has been done," she says. "Be prepared to go room by room with them and explain if necessary."

She also recommends checking with your town or city before you meet with the appraiser to confirm that the lot size and finished square footage are correct.

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9. Time your refinance.

Matt Perillie, a loan officer with Campbell Mortgage in North Haven, Conn., recommends trying to time a refinance around recent comparable market sales.

"Residential appraisers will use recent market data as comparable sales to determine property value," he explains. "A few recent similar sales in a given month can change the appraiser's opinion of value by $40,000 or $50,000. I recently had a transaction where we thought that value would be an issue. When researching the market, we noticed that there were two similar properties under contract in the area. We waited 30 days and the properties closed. The appraiser used one of those sales as a comparable sale and the value worked."

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10. Give HARP a try.

Polyana da Costa, senior mortgage analyst at Bankrate.com, says homeowners who owe more than their home is worth should consider looking into the Home Affordable Refinance Program in 2013. Even if you have tried and failed in the past, she recommends giving it another shot.

"HARP 2.0 was revamped to allow homeowners to refinance regardless of how deeply underwater they are," she says.

She says many borrowers are still running into obstacles when refinancing, but that the situation is improving. "Lenders are much more open to HARP 2.0 refinances these days than they were a few months ago. If one lender says you don't qualify for a HARP refi, don't take no for an answer, and try to find a lender willing to do it."

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11. Do the math. All of it.

Bill Dreischmeier, a real-estate agent with The Lingwall Group in Minnesota, says some homeowners might follow conventional wisdom, which says a homeowner should never consider a refinance unless the new interest rate is at least 1% lower than the current rate — assuming the borrower pays closing costs. But every situation is special, and a homeowner has to figure out what makes sense in that particular situation. That includes calculating how long it will take to recover the closing costs in new interest savings.

"It makes far more sense to accept a slightly higher new rate and have the lender pay the closing costs," Dreischmeier says. "Suppose a borrower had recently refinanced to a 3.875% rate. She could get a 3% rate if she pays the closing costs or a 3.375% rate if the lender pays the costs. On a $400,000 loan the half-percent savings would be a $2,000 savings in the first year. The only cost to the homeowner is the time it takes to provide documents and attend a closing."

Dreischmeier says a no-closing-cost refinance eliminates the need to ask, "How long do you intend to stay in your current home?" He equates the monthly interest savings to an increase in take-home pay.

"No one would turn down an increase in their monthly take home pay just because they plan to leave the job in a year," he says.

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12. Try a shorter loan term.

"Now may be a chance to shorten the length of your mortgage, and as a result, potentially save tens of thousands of dollars in interest over the life of the loan," says Gary Malin, president of Citi Habitats in New York. Malin says a homeowner might be able to refinance into a shorter term at a lower rate and pay off the loan five to 10 years early with just a small increase in monthly payment, if any.

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13. Consider the what-ifs.

"Sure, you may think you are going to live in this house for a long time," says Jeff Tufford of Monarch Mortgage in Michigan, "but what if you want to move in five years? What about 10 years? There is going to be cost involved. How long will it take for your monthly savings to add up to that cost? If it will take five years, what are the odds you will still be in the home in five years?"

Tufford advises homeowners to consider two particular what-ifs when deciding whether to refinance: "What if you wait and rates get worse? What if you get a loan now and rates get better? Which scenario has worse ramifications? If you wait and rates get worse to a point where a refinance is not worth it, you will save nothing. If you refinance and rates get better, you still did something positive. The only thing guaranteed with interest rates is that nothing is guaranteed."

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