Refinance - Rate & Term

The refinancing process is often less complicated than the home buying process, although it includes many of the same steps. It can be hard to predict how long your refinance will take, but the typical timeline is 15 to 25 days.

Let's take a closer look at the refinancing process.

Applying

The first step of this process is to review the types of refinance to find the option that works best for you. When you apply to refinance, your lender asks for the same information you gave them or another lender when you bought the home. They’ll look at your income, assets, debt and credit score to determine whether you meet the requirements to refinance and can pay back the loan.

Some of the documents your lender might need include your:

• Two most recent pay stubs
• Two most recent W-2s
• Two most recent bank statements

Your lender may also need your spouse’s documents if you’re married and in a community property state (regardless of whether your spouse is on the loan). You might be asked for more income documentation if you’re self-employed. It’s also a good idea to have your tax returns handy for the last couple of years.

 
You don’t have to refinance with your current lender. If you choose a different lender, that new lender pays off your current loan, ending your relationship with your old lender. Don’t be afraid to shop around and compare each lender’s current rates, availability and client satisfaction scores.

 
Locking In Your Interest Rate

After you get approved, you may be given the option to lock your interest rate, so it doesn’t change before the loan closes.

Rate locks last anywhere from 10 to 180 days. The rate lock period depends on a few factors like your location, loan type and lender. You may also get a better rate by opting to lock for a shorter period of time because the lender doesn’t have to hedge against the market for as long. Be warned, though: If your loan doesn’t close before the lock period ends, you may be required to extend the rate lock, which may cost money.

 
Underwriting

Once you submit your application, your lender begins the underwriting process. During underwriting, your mortgage lender verifies your financial information and makes sure that everything you’ve submitted is accurate.

 
Your lender will verify the details of the property, like when you bought your home. This step includes an appraisal to determine the home’s value. The refinance appraisal is a crucial part of the process because it determines what options are available to you.

 
If you’re refinancing to take cash out, for example, then the value of your home determines how much money you can get. If you’re trying to lower your mortgage payment, then the value could impact whether you have enough home equity to get rid of private mortgage insurance or be eligible for a certain loan option.

Home Appraisal

Just like when you bought your home, you must get an appraisal before you refinance. Your lender orders the appraisal, the appraiser visits your property and you receive an estimate of your home’s value.

 
To prepare for the appraisal, you’ll want to make sure your home looks its best. Tidy up and complete any minor repairs to leave a good impression. It’s also a good idea to put together a list of upgrades you’ve made to the home since you’ve owned it.

 
If the home’s value is equal to or higher than the loan amount you want to refinance, it means that the underwriting is complete. Your lender will contact you with details of your closing.

What happens if your estimate comes back low? You can choose to decrease the amount of money you want to get through the refinance, or you can cancel your application. Alternatively, you can do what’s called a cash-in refinance and bring cash to the table in order to get the terms under your current deal.

Closing On Your New Loan

Once underwriting and home appraisal are complete, it’s time to close your loan. A few days before closing, your lender will send you a document called a closing disclosure. That’s where you’ll see all the final numbers for your loan.

At closing, you’ll go over the details of the loan and sign your loan documents. This is when you’ll pay any closing costs that aren’t rolled into your loan. If your lender owes you money (for example, if you’re doing a cash-out refinance), you’ll receive the funds after closing.

1. Change Your Loan Term

Many people refinance to shorten their loan term to save on interest. For example, say you started with a 30-year loan but can now afford a higher mortgage payment. You might refinance to a 15 year term to get a better interest rate and pay less interest overall.

You can also lengthen your loan term to lower your monthly payment.

2. Lower Your Interest Rate

Interest rates are always changing. If rates are better now than when you got your loan, refinancing might make sense for you. Lowering your interest rate can lower your monthly payment and you’ll pay less interest over the life of your loan.

 
3. Change Your Loan Type

There are many reasons a different type of loan may benefit you. Perhaps you originally got an adjustable rate mortgage to save on interest, but you’d like to refinance your ARM to a fixed-rate mortgage while rates are low.

Maybe you finally have enough home equity to refinance your FHA loan to a conventional loan and stop paying for private mortgage insurance.

 
4. Cash Out Your Equity

With a cash out refinance, you borrow more than you owe on your home and pocket the difference as cash. If your home’s value has increased, you may have enough equity to take cash out for home improvement, debt consolidation or other expenses. Using cash from your home allows you to borrow money at a much lower interest rate than other loan types. A cash-out refinance can have tax implications, though.

What does it cost to refinance?

The total cost to refinance depends on a number of factors like your lender and your home’s value. Expect to pay 2 – 6% of the total value of your loan.

The nice thing about refinancing is that you may not have to pay those costs out of pocket, especially since the adverse market refinance fee was eliminated.

In some cases, you can get a no closing cost refinance so you don’t have to bring any money to the table. Be aware that closing cost is then paid over the life of the loan in the form of a higher rate.

 
When should I refinance my mortgage?

There are a lot of factors to think through when deciding if you should refinance. Consider market trends (including current interest rates), as well as your personal financial health (especially your credit score). It’s a good idea to use a mortgage calculator to figure out your break-even point after accounting for refinancing expenses.

 
You also need to know how refinancing differs from other mortgage options like loan modification and second mortgages. The major difference between a refinance and a loan modification is that refinancing gives you a new mortgage while modification changes your current terms.

 
The new mortgage you get from refinancing replaces the existing one, an important distinction between getting a second mortgage and refinancing. Review what works best for you before deciding what to do.
 

If you’re interested in lowering your monthly payment, a mortgage recast is a straightforward option. It involves making a significant lump-sum payment on your principal so your lender can re-amortize the balance.

 
How soon after closing can I refinance? 

The answer to this question depends on the type of loan you’re getting and the mortgage investor in your loan. It could be as little as 30 days and as much is 6 months or 1 year.

How of ten you can refinance depends on the amount of equity built-up and current mortgage balance. 

 
Will refinancing my home affect my credit?

When a homeowner refinances their mortgage, the lender pulls a hard inquiry and runs a credit report on the borrower’s history. This process will lower your credit score but only for a short period of time. As long as you don’t open any other credit cards and continue repaying any debts you have, your credit score can recover after a few months.

If you’re ready to get rolling, you can start your application now or call 206.335.7334 to discuss your particular needs.