Steps to Refinance Your Home
Step 1 – Get prepared
Before starting the mortgage refinancing process, it is important to check your credit, and clear up any inaccuracies. If you detect erroneous information on your credit report that may be impacting your score, consider disputing the report at least 60 days before you plan to apply for a refinance mortgage. Most lenders will not start the loan process if there are any open disputes with the credit bureaus.
Here’s a list of documents that you will likely need to provide your loan consultant:
- Most current paystub showing at least 30 days of year to date income
- Past two years’ W2s
- Two years of personal tax returns
- Bank, investment or retirement account statements covering the past two months (all pages)
- Current homeowners insurance declaration page
- Most recent mortgage statement
- If ever divorced, a complete divorce decree and separation agreement
- If ever declared bankrupt, complete bankruptcy papers
- Credit explanation letter for any recent or significant derogatory credit issues
- Inquiry explanation letter if you’ve applied for any forms of credit in the past 90 days
- List of questions regarding mortgage product and programs for loan agent
Step 2 – Determine the right refinance loan
When looking for the refinance options, be prepared to answer the following questions to determine the right mortgagerefinancing options for you:
- What do you hope to achieve with a refinance? (save monthly, pay it off faster? etc.)
- How long have you owned this property?
- How long do you expect to own this property?
- Are you familiar with the different loan products available today?
- What is your risk tolerance for rate and/or payment adjustments with your new loan?
Step 3 – Complete the application
After you’ve found the right mortgage and consulted with a loan agent, the next step is the loan application. Here you should make sure that all of the information on the application is absolutely accurate and matches the documents that you put together in step one. Even innocent mistakes on an application can be looked at suspiciously by the loan reviewer once your loan makes it to underwriting, so make sure that it is complete and accurate. At this stage, it is important to confirm with your loan agent that he has everything he needs to review your application.
Step 4 – Order appraisal
After the loan agent has reviewed your application and documentation, you need to order your appraisal. The appraisal is the document that establishes the value of your property and determines whether or not you have sufficient equity to support the loan. The average cost of appraisal is between $300 – $400 and is usually paid by the homeowner.
Step 5 – Underwriting review
Your completed loan application and appraisal will be forwarded to an underwriter to be reviewed. The underwriter is going to look carefully at each of the documents that you provided to determine your capacity to make the payment on this loan. Be prepared to provide additional documentation or explanation after the underwriter’s review.
Step 6 – Review loan approval and conditions
If the underwriter is satisfied with your loan application, they will issue an approval letter and conditions. The approval letter will have the terms of the loan that you are approved for and the conditions will list any remaining items that you need to provide. Read through you approval letter carefully to make sure that the loan terms approved by the underwriter match what you thought you were getting. Also, review your conditions to make sure that you can satisfy all of the underwriter’s requirements.
Step 7 – Lock in interest rate
Once you are satisfied with your loan approval and conditions, your loan agent will ask you if you are ready to lock your refinance mortgage rate. A rate lock protects you from rising rates. Rate locks are for a specific period of time, generally 7 to 60 days. Although you generally do not have to pay for the rate lock upfront, the term of the rate lock can add to your closing costs. Generally, you should expect that the longer the lock period, the higher the cost at close. You should carefully evaluate the time it will take you to put together the remaining conditions and factor in time for the lender to review and to prepare your documents. Delays are common in the refinance process, so you’ll want to factor a few extra days for the unexpected. If you are not able to close within the lock period, you may lose your rate or be subject to lock extension fees, so choose your lock period wisely.
Step 8 – Order documents
Once your conditions are reviewed and accepted by the underwriter and your rate is locked, you will order your loan documents. Ask your loan agent to provide you a preliminary closing statement that lists all expected closing costs and an overview of the terms. It is critically important to review the details carefully to ensure that there are no surprises at close. If you have questions about your preliminary closing statement, bring them to your loan agent’s attention prior to sitting down at the closing table. If everything is good to go on the preliminary closing statement, you select a signing date and order documents.
Step 9 – Sign loan documents
Finally, you are ready to sign your documents. Your loan agent will confirm where and when the signing will occur. At the closing table, you will be asked for identification so make sure you bring a driver’s license, state issued identification or passport. Also block off enough time so that you will be able to carefully review the documents prior to signature. You will generally sign with a notary or attorney that can explain each document to you. When signing, carefully sign each document with a consistent signature.
Step 10 – Close
If you are refinancing an owner-occupied residence, you will have a three day right of cancel period. This time allows you to continue to consider if this loan is right for you. If you decide to cancel, you need to contact your loan agent prior to the expiration of the cancellation period. This time frame will be clearly identified on a document called the “notice of right to cancel”. After the cancellation period expires, you lender will fund your loan and your closing agent will apply the funds to pay off your existing loan(s). Once funds are appropriated, you will be officially closed and the closing agent will send your new mortgage or deed to be recorded against your property. Within a few days, you will receive a HUD-1 form, which is the official closing statement. Make sure you keep a copy of the HUD-1 along with a copy of the loan documents for tax purposes and future reference.