The Refinance Process - What to Expect
Refinancing your mortgage can be a smart move for many reasons, from lowering your interest rate to cashing in on your home equity. However, many people find the refinancing process confusing and a little intimidating. They wonder: How long will it take? How much work will it involve? Is it even worth doing?
A typical home refinance takes between 20 and 45 days. Here’s a quick overview of the process, and what to expect at each stage.
Step One: Check Your Credit
Your credit score has a big impact on the rate you could get on your new home loan. So, before you even start your refinance, it’s a good idea to check your credit report to see where you stand. Check all three reports (Equifax, Experian, and TransUnion) for errors that could be dragging down your credit score, and if you find any, fix them. It’s recommended to do this at least two months ahead of time to make sure the errors get fixed before you apply for your new loan.
Step Two: Compare Types of Loans
The next step is to find the right mortgage loan for your refinance. If you’re currently in an adjustable-rate mortgage, it might make sense to look at a fixed-rate loan to secure a stable interest rate. Are you looking to pay off your mortgage sooner? Consider a 15-year term instead of the standard 30-year. If you’re looking to lower your payment or get cash out, you could look at a conventional or a cash-out refinance.
Step Three: Gather Documents
Once you decided on the type of loan to apply for, it’s time to put together all the paperwork you’ll need. Documents needed will be very similar to when you purchased your home for the first time. This includes:
- Pay stubs from the past month
- W-2s for the past two years
- Tax returns for the past two years
- Bank statements for the past two months
- Your most recent mortgage statement
- Your homeowners insurance policy
Depending on your situation, other documents may be needed as well.
Step Four: Apply for a Loan
After assembling all the necessary documents, you can fill out your loan application. As you fill in the forms, take extra care to make sure all your information is accurate and complete. Any mistakes can slow down the loan process and possibly create problems when you get to the underwriting stage.
Within three days after submitting your application, you should receive a loan estimate. It will cover all the details of your loan, including disclosures, your new monthly payment, and closing costs.
Step Five: Get an Appraisal
The next thing you’ll need is a home appraisal. The purpose of this is to make sure your home is worth enough to qualify for your new loan. Your lender will arrange to have an appraiser come inspect your house, take pictures and notes, and write a report. You will be responsible for the cost of this process, which averages between $300 and $400. If the appraiser concludes your home is worth more or less than you thought, the lender might revise your loan estimate, and you will need to review it again.
Step Six: Go Through Underwriting
At this point, your loan must go through underwriting review. An underwriter carefully goes over all the documents you provided to make sure that everything is accurate and to verify that you can afford the new loan payments.
If the underwriter finds any problems, you may be contacted with questions or asked to provide additional documents. If the underwriter is satisfied, you’ll receive an approval letter with the final terms and conditions of your loan. Review it carefully to make sure it meets your expectations.
Step Seven: Lock in Your Rate
Once you’re satisfied with your loan approval and conditions, you’ll get a chance to lock in your interest rate. A rate lock guarantees that you’ll get the rate specified in your approval letter. You can actually lock in your rate sooner than this, but the lock is only good for a limited period of time – typically between one week and two months. Selecting a longer lock period adds to your closing costs, so it’s usually best to wait until about six days before closing to lock in your rate. This gives you enough time to prepare for the final stages of the refinance process.
Step Eight: Close Your Loan
As soon as your loan rate is locked, you will get a preliminary closing statement that sums up your terms and closing costs. You should review it carefully, like all your other refinance documents. If everything looks okay, you can select your closing date and order your loan documents.
Your lender will tell you when and where to meet for the closing. This is where you’ll sign all the final loan documents in the presence of a lawyer or notary public. This can take an hour or more, so block out time in your schedule for it. Also, be sure to bring ID, such as a driver’s license or passport, and a check to cover the closing costs.
After your closing, you have a three-day “right of cancel” period. If you change your mind about the refinance during this time, you can contact your loan agent and cancel the loan. Once these three days are up, your old mortgage will be paid off and your new one will go into effect. Your lender will send you a new mortgage or deed and an official closing statement, called a HUD-1 form. Hold on to this, along with all your loan documents, for tax purposes.
Ethos Lending is a new type of mortgage lender. We use technology to keep our operational costs as low as possible. From closing costs to interest rates, we have made it our mission to make the process of buying a home more affordable. Get in touch with one of our mortgage specialists to learn more.