Refinance ChecklistA Step by Step Outline of the Refinance Process The mortgage refinance process can seem confusing, even to those who have been through it before. Whether this is your first time refinancing your home and you’re not sure where to begin, or you’ve done it multiple times and simply need a refresher, the step by step outline included here will help you get through your refinance without any stress or issues. Get prepared.The first part of any successful refinance is preparation. What can you do to prepare? Ideally, you should start getting ready for a refinance months before you plan to take out the new loan. You’ll need three things to qualify.
During preparation, determine whether or not you meet these criteria. If you don’t, try to change your situation. Build up your credit score if you have to. Get your home appraised to find out how much value you truly own. Find ways to increase your income, if necessary. Whatever the case, make sure your financial situation is healthy and stable, and try to keep it that way for at least six months to prove to your lender that you’re on solid ground. Get organized, too. If you don’t have a copy of the promissory note to your current mortgage, find it or ask your current lender for a new copy. Get pay stubs from your employer and a W2 if you’re a wage earner. Gather tax return paperwork if you’re self employed. Collect bank statements for the past two or three months. Get this paperwork ready and organized in a place where you can easily find it. Your lender will need all of this information and more to complete your refinance. One of the best things you can do is make sure your finances are in order. Make sure you know your long term financial goals and you’re ready to pay the costs associated with taking on a new mortgage. Determine the goal of your refinance.Find out what you need from your refinance. Why do you need a refinance at all? Is the goal to get a lower mortgage rate on your loan? To pay the loan off faster? To pull out cash for other expenses? Each of these goals lends itself to a different type of refinance, and each refinance type requires you to make different financial decisions. If you want a lower interest rate on your loan, the refinance process is simple. But you need to have equity in your home, as mentioned above. If you don’t have this, you won’t qualify. To confront this issue, many borrowers bring cash to the closing table to pay down their own loan balances. If you decide to do this, you’re getting what’s called a cash-in refinance. You’re putting cash into the new loan up front. This can help borrowers who are underwater or who don’t have sufficient equity obtain lower mortgage rates and save money. You’ll have to do some calculations, though. Make sure the amount you’ll save over the course of your loan is more than the cash you’ll have to put in. If you want to tap into your home equity and withdraw cash to put toward expenses such as medical bills or home improvements, you’ll need a cash-out refinance. These loans are readily available, but they’re not as easy to qualify for. If this is what you’re looking for, get in touch with a lender early in the process and find out what specific qualification requirements you need to meet. Decide how long you plan to stay in your home.This is one of the most important things you can do before you refinance. It may seem like a short, simple step, but there are serious financial ramifications connected to it. If you don’t plan to remain in your current home for at least five years, it’s likely not worth it to refinance. The closing costs will outweigh the money you’ll save though lower payments or a reduced loan term. If you plan to remain in your home long term, a refinance is almost always a good idea. But still, don’t approach it blindly. Do the math. Use our mortgage refinance calculator to help you determine whether or not a refinance will save you money. Be prepared to combine all loans into one or pay off second loans before you refinance.If you have a second mortgage, you can still refinance your first mortgage, but the loan holder of your other loan must agree to remain in second position. If no, the loan must be paid off in full at the time of the refinance. This can create a significant obstacle for some borrowers. Most borrowers with second mortgage simply combine the two mortgages into one with the refinance. Contact a lender as soon as possible to find out if this will create any issues for you. It shouldn’t, but it doesn’t hurt to find out sooner rather than later. Protect your credit score.Don’t let anything harm your credit score during the three to six month period before you apply for a refinance mortgage. Don’t open or close any accounts or credit lines. Don’t make any large purchases. Don’t max out anything. Protect your credit score at all costs. It’s a good idea to check your credit yourself just before you apply. Make sure there are no unresolved issues or errors you may not have noticed. A credit score of at least 720 or 740 will get you the lowest refinance rates. If your score is lower than this, you’ll have to settle for less favorable terms or take the time to build it up before you apply. Find out if your current loan has an early repayment penalty.If it does, the refinance will cost you more money. Very few loans come with these penalties these days, but some loans that were originated in past years still carry these stipulations. An early repayment penalty will force you to pay additional fees when replacing your current mortgage with a refinance mortgage. Check this before you decide to refinance. Select a mortgage type for your refinance.You’ll need to pick a mortgage type to take on. The choices are much the same as in any other mortgage arrangement. The 15 year fixed rate mortgage is often considered to be the most popular refinance loan. It’s possible to get an adjustable rate mortgage, but these are not recommended for use as refinance loans. It’s more likely that you’ll need an ARM refinance to eliminate your current adjustable loan. Try to avoid taking on an ARM. These loans can be dangerous in today’s market. There are at least two loan options reserved exclusively for refinance mortgages. The first is the no cost refi, which allows you to switch to a new loan without paying full closing costs. The second is the FHA streamline refinance. This option allows FHA borrowers to take out refinance loans much faster than otherwise by reducing paperwork requirements and lowering fees. Either of these options is worth looking into. If you qualify, take out one of these loans to save money. Another option to consider is the government’s refinance assistance program, the Home Affordable Refinance Program (HARP). This refinance program is designed to help underwater homeowners and borrowers with negative equity obtain refinance loans despite their inability to qualify for conventional mortgages. The newer version of this program is called Harp 2.0. To take advantage of HARP, your home must be your primary residence and you msuty be current on your mortgage payments. Find out if you’re eligible for HARP with this short quiz. Find a lender.This is the most important part of the process. The lender you pick will determine the ease with which you close your loan, the fees you pay, and the refinance rate you receive. Get quotes from multiple lenders and compare the rates and terms they offer. Pick the lender or broker that offers the lowest mortgage rates and can get your refinance closed with expertise and solid service. Again, this is crucial. Do as much research as possible. Find out what lenders in your area offer and what you qualify for. Don’t settle for a lender or broker who can’t meet your needs. Once you’ve selected a lender, get in touch and explain your situation. Any good lender or broker will work with you to customize a refinance package that accomplishes what you need it to accomplish. Remember all that paperwork you organized at the start of the process? Give all of it to your lender when asked. Don’t waste any time. The faster you deliver on your part of the process, the faster your lender can process your refinance loan. Pay closing costs.After this, the rest is easy. Make sure you find out what closing costs you’ll need to pay and set the money aside to do so. Negotiate any fees that seem extraneous to you. Overall, closing a refinance loan is nowhere near as complex as closing any other loan type. Your lender or broker will walk you through the steps involved in this part of the process. |
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