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About Mortgage Refinance Process
Your home is an investment and one way you can use your home to leverage that investment is by refinancing.
There are numerous reasons for you wanting to refinance like – getting cash from your home, lessening your payment, and reducing your loan term.
Here let us know what to expect while refinancing a mortgage.
What Is A Mortgage Refinance Process?
The process of getting a new loan for your home is referred to as a mortgage refinance. When you refinance, you’re left with just one loan and one monthly payment because your new mortgage loan pays off the old one.
There are various reasons why people use the mortgage refinance process for their homes. The two main reasons for a mortgage refinance are – to cash in on your home’s equity or get a better interest rate.
If you have another person in mortgages like your partner or spouse the refinance could also be sought to remove another person from the mortgage, this often happens in the case of divorce.
How does Mortgage Refinancing Process Work?
Compared to the home buying process, the mortgage refinance process is often less complicated, though it has many of the same steps. So here is how the mortgage refinancing process works.
Step 1: Applying for Refinance
When you want to apply for refinancing, your lender will ask you for the same information that you gave them when you bought the home.
Your income, assets, debt, and credit score are what they’ll look at to determine whether you can pay back the loan or not.
A few other documents required by your lender might need to include your:
- Your most recent pay stubs (two months)
- Two of your most recent W-2s
- Two of the most recent bank statements
If you are married then your lender will also need your spouse’s documents. If you are self-employed, then you might be asked for more income documentation.
There is no compulsion that you have to refinance only with your current lender. If you are choosing a different lender, then that new lender pays off your current loan, thus ending your association and link with your old lender.
We suggest you compare each lender’s current rates availability and client satisfaction scores while shopping for lenders.
Step 2: Locking in Your Interest Rate
Before the loan closes and after you get approved, you are given the choice to lock your interest rate so it doesn’t change.
These rate locks stay for about 15 – 60 days. Depending on a few factors like your location, loan type, and the lender the rate lock period is determined.
You may be required to extend the rate lock if your loan doesn’t close before the lock period ends, and this extension may cost extra money.
The option to float your rate is another option you might have, where you are not locking it before proceeding with the loan.
Though it may allow you to get a lower rate, the risk of getting a higher rate is also possible. It is generally a good idea to go ahead and lock your rate if you’re happy with rates at the time you’re applying.
Step 3: Underwriting
The underwriting process starts once you have to submit your application to your lender. Your mortgage lender verifies your financial information during underwriting and makes sure that everything you’ve submitted is accurate.
The details of the property, like when you bought your home is all verified by the lender and then an appraisal is done to determine the home’s value.
Because it determines what options are available to you, the appraisal is a crucial part of the mortgage refinance process.
For example, if you’re refinancing to take cash out, how much cash you can get is determined by the value of your home.
If you’re trying to lower your mortgage payment, then the value could impact whether you have enough home equity to get rid of private mortgage insurance or be eligible for a certain loan option.
Step 4: Home Appraisal
Before you refinance you must get an appraisal, just like when you bought your home. The appraiser visits your property when your lender orders the appraisal, and you will receive an estimate of your home’s value.
You will want to make sure your home looks its best, to prepare for the appraisal. Check and plug any repairs, clean up your property, and to leave a good impression with the appraiser.
You can also put together a list of upgrades that you’ve made to the home since you’ve owned it which would be a good idea.
If your home’s value is equal or higher than the loan amount you want to refinance, then it means that the underwriting is complete.
You will be contacted with details of your closing by your lender. Similarly, you can choose to decrease the amount of money you want to get through the refinance or you can cancel your application if your estimate comes back low.
Step 5: Closing on Your New Loan
It is time to close your loan, once underwriting and home appraisal are complete. Your lender will send you a document called a Closing Disclosure, just a few days before closing. You’ll see all the final numbers for your loan in that.
The closing for a refinance is faster compared to the closing of a home purchase. The people on the loan and title and a representative from the lender or title company are the people who attend the closing.
You’ll go over the details of the loan and sign your loan documents at closing.
This is the time to pay any closing costs that aren’t rolled into your loan. If you’re doing a cash-out refinance then, you’ll receive the funds after closing from the lender who owes you money.
Conclusion
Consider the market trend and personal financial status when you are deciding if you need to refinance.
Calculate your break-even point after accounting for refinancing expenses and decide if the mortgage refinance process is for you. Refinancing is a great financial tool so you can use the money to improve your life and your home.
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