Step-by-step process of mortgage refinancing
Now you know why you should refinance and understand everything you should watch out for before refinancing. It’s time to put this knowledge into practice and submit your mortgage refinance application.
- Check your financial status
Like mortgage pre-approval, refinance mortgage lenders have to check your credit score, income, employment history, and debt-to-income ratio. If you have a low credit score, no stable source of income, and have more debts than earnings, then the chance of qualifying for a mortgage refinance is zero.
So make sure that you have a healthy financial profile before applying for a mortgage refinance.
Read Also: How to get out of Debt fast
- Decide on the type of refinance mortgage loan fit for you
You have to decide if you want a cash-out to refinance, meaning you borrow more than you owe and get some cash. Or do you want to enjoy lower interest rates and better payment terms without tapping into your home equity?
This is an essential step in refinancing. Then decide on the loan duration; the longer, the more years with lower monthly repayments, the more interest you will pay over the life of the mortgage.
- Determine the available home equity
Refinance mortgage lenders do not accept to refinance a mortgage valued at more than 90% more than your available home equity. Besides, if you borrow more than 80% of your home equity, you’ll be required to pay private mortgage insurance (PMI).
So before applying for a home loan refinance, you can calculate how much you qualify for and be sure to compare different refinance mortgage lenders.
- Shop for refinance mortgage lenders
Different lenders have varying mortgage refinance rates, closing costs, and origination fees. So it would be best to compare different lenders to find the most affordable option. Make sure to use an online mortgage calculator when making the comparisons.
It would also benefit you to check their customer service (24/7), online reviews and testimonials, and how long they take before closing a loan.
- Select your lender
After comparing different refinance mortgage lenders, choose the one that fits your needs.
- Submit your refinance mortgage application
Fill out the refinance loan application and submit it to the lender. You will be required to submit basic financial information, such as W-2, pay stubs, social security numbers, debt statements, credit reports, and income statements for the last 2 months.
Typically, it takes a few hours, and it can be expedited if you have all the documents needed.
- Receive loan estimate
After submitting your loan application, the refinance mortgage lender will present you with a loan estimate after three days. The loan estimate includes the following details:
- Estimated interest rate
- Monthly payments
- Closing costs
- The overall cost of tax and insurance
- Future changes in interest rates
- Penalties (if applicable)
Once you’ve reviewed the loan estimate, decide whether you want to secure your loan with the lender.
- Property inspection and appraisal
Refinance mortgage lenders will order a home inspection and appraisal before approving your refinance loan. The lender wants a guarantee that your home is sufficient collateral.
The assessment is based on the size and number of rooms, amenities, and the real estate status in your area—the appraised value influences the loan amount and terms.
- Close your loan
If all your financial information checks out and the appraisal and inspection go smoothly, your refinance mortgage lender moves forward with the loan and schedules a closing date.
After closing on your loan, you have a maximum of three days to cancel your loan if you change your mind. Once the three days are up, your old loan is paid off, and your new loan takes effect. Check to ensure that the closing statement coincides with your loan estimate; you have three days to do this before closing.
Bottom Line
Deciding whether to refinance is a big decision that requires a lot of deliberation. Therefore, don’t just wake up and decide to refinance because other people are doing it.
Evaluate what benefits it will bring apart from the low-interest rates, then determine if it’s the right route for you. Above we expounded on various reasons why you should and should not refinance.
