Mortgage refinancing allows homeowners to switch to another lender, lower their interest rate or take some cash out of their home for home improvements or other financial needs. Several homeowners do not refinance due to the uncertainty of the process that lies ahead of them.
Here is a step-by-step guide for the mortgage refinance process:
Step 1: The cost involved.
What upfront costs are you responsible for? If you choose to refinance with your current lender, the deferred establishment fees (DEF) are typically waived. However, there are still other fees to consider. Based on how much your new loan is for, you might be required to pay some to cover the difference in your current mortgage balance and new mortgage balance. There could also be fees such as an application fee and valuation fee.
Step 2: The purpose of the refinance.
There are several different reasons you might choose to refinance. If you have a large amount of equity in your home, you can do a cash-out refinance to withdraw some of that equity for home improvements, debt repayment or other financial hardships. Another reason for refinancing could be to lower your interest rate and obtain a lower monthly payment.
Step 3: Choosing the right mortgage plan.
Consider the different loan options. Create a list of features you desire in your new mortgage and shop around for the best fit. Things to consider are the term, interest rate, if private mortgage insurance is a requirement and the type of loan.
Step 4: Applying
Once you have determined what desire, the next step is to apply for the loan. The refinance process is similar to the initial purchase process, but if you refinance with your current lender they might be able to retrieve some of your paperwork from the initial purchase. Keep in mind, you will still need documents such as updated bank statements, updated pay stubs and anything else related to your income, liabilities or assets.
Step 5: Inform current lender
Once you have chosen a new lender, advise your current lender that you plan to refinance your home. Your current lender can forward needed information over to your new lender, with your permission.
Step 6: Pre-approval
Be patient – the pre-approval process could take a few days or maybe even a few weeks. The new lender will review your information and advise you of your options.
Step 7: Valuation
Your new lender will arrange for the valuation of your property. Each one will need to be evaluated, depending on how many homes you plan to refinance. Typically, they will complete the first valuation for free and then there will be a fee added for each additional property.
Step 8: Finance approval
Once review and approval of your documentation are complete, your lender will issue you a formal loan approval letter. At this point, the lender will request documents to be prepared on their behalf.
Step 9: Legal
After preparation, the documents will be sent to you for review. Look over them carefully as they are legally binding.