When making the decision to refinance your home, there are many types of refinancing options available for today’s homeowners. Rate-and-term and cash-out are the most common ways of refinancing. No matter which one you are contemplating, the process is the same. Understanding it, and how to shop around may mean huge savings for you when refinancing.
Why Refinance Your Home
Have you spent years of watching remodeling shows and dreaming? Did you lock in a mortgage rate at the wrong time? These are just two examples of why you might want to refinance your home. Simplistically, a mortgage refinance replaces one loan with another to meet a homeowner’s needs.
There are many types of refinancing options available from lenders like Bank of America, CitiGroup, JP Morgan Chase and Wells Fargo for today’s homeowners. No matter the type of refinancing or the lender, the process is the same.
The Process
The first step in deciding to refinance your home is to determine your ultimate goal. Do you want to reduce your rate? Do you want to consolidate debt or make improvements to your home? Refinancing can save homeowners a significant amount of money. Exercise caution and be sure to get a complete overview of your finances before you decide on refinancing.
Research and Current Status
Determine the current value of your home, including taking a look at the values of other homes in your neighborhood. Review your credit history and remedy any inaccuracies at least 60 days before you consider refinancing. A favorable credit score will make you more attractive to lenders. Additionally, make sure that you have standard documents (pay stubs, W-2 statements, tax returns, financial account statements, a copy of mortgage insurance declaration, and your most recent mortgage stub to name a few) ready for review by your potential lender.
Next, you will want to evaluate refinancing offers from multiple lenders. Get rates and loan estimates from each lender. Estimates are required to be issued within three days of the request. Once you have received several estimates, use the online refinancing tool again to help you decide which offer is best for you.
Be sure that you fully understand the all-in cost to refinance your home. Refinancing can come with multiple fees: application fees, appraisal, origination fees, document processing fees, underwriting fees, credit report charges, title research and insurance, recording fees, tax transfer fees and points. You will get a clear estimate of these fees with each estimate from potential lenders and be sure to be wary of ‘no-cost’ refi offers that move upfront costs to the ongoing cost of the loan.
Application and Documentation
Once you have determined the right offer, complete the lender’s application. This is where having the necessary documents at the ready will be an asset. Be sure to check that all information on the application is accurate and matches your documents. Confirm with your loan agent that he has all the required data to review your application. Once the application has been submitted, you will order the appraisal of your home. The appraisal determines not only the value of your home but also establishes the necessary equity to support the loan.
The completed application and appraisal are then sent through underwriting. An underwriter will meticulously review each of your provided documents to evaluate your ability to repay the loan. Be prepared to provide an explanation and/or additional documentation per the request of the underwriter. Once the underwriter is satisfied with your application, an approval letter will be issued. Carefully review the approval letter to be sure the terms approved are what was agreed upon. Take note to review any conditions that you may need to meet to satisfy the underwriter’s terms. This is the point in the refinance process that you will lock in your interest rate. Rate locking protects you from rising rates and generally is set for between 7 and 60 days.
Approval
The final steps to refinance your home are ordering your loan documents and scheduling the closing. Be sure to bring proper identification to the closing as you will be asked to show a valid form. Carefully review each document prior to signature and be consistent in your signature. There is a three-day right to cancel period for owner-occupied refinances. This allows additional time to be sure this is the loan for you. After the cancellation period expires, the lender will fund your loan. Within a few days, you’ll receive your official closing statement and either the mortgage or deed to be recorded.
