Your Refinance Guide
As a first step while refinancing a mortgage, you need to determine your goals – whether you are looking for a lower payment, want to take cash out, or need to reduce the term of your mortgage.
Evaluating Your Refinance Options
After you have clearly established your refinancing goals, you will need to choose the right type of loan that can help meet that goal.
If your goal is to lower your payment and gain some flexibility in the monthly budget, you may choose to obtain the lowest interest rates available. This could be possible with an ARM (adjustable rate mortgage).
Another option is to change your mortgage term if lowering mortgage payments is more important for you than quickly paying off the loan. If you lengthen your mortgage term, for example, from a 15-year to a 30-year term, it will make each payment smaller.
A third option would be to eliminate mortgage insurance, which could potentially save several hundred dollars a month for you. To follow this option, you should first determine the type of insurance you have.
FHA loans have MIP (mortgage insurance premiums), while conventional loans have PMI (private mortgage insurance). Once you have nearly 20 percent equity in your home, you will usually stop paying PMI. Stopping MIP payments will depend on what amount you had put down when you purchased the home and when you did the closing.
Applying for Refinance
With the right lender, a major decision such as mortgage refinance can get executed as sharply as possible. When choosing a lender for your refinance, you should ask questions about their:
- Accessibility: Having someone available to address your questions and concerns.
- Fees and rates: While this is important, the lowest rates are no guarantee of the best outcomes for your refinance.
- Expertise and experience: Does the lender have authoritative knowledge and experience, and are they someone whom you can trust for a long-term relationship.
- Online processing capabilities: Will the lender provide you the option to complete the refinance process online if you want it.
- Estimated time to complete the process: If you have an urgency to close quickly, will the lender prioritize your loan and help you accomplish your goal swiftly.
You should ideally prepare the required financial documents before you apply so that you can close the mortgage rapidly. Your lender will probably require the following documents:
- Two latest monthly bank statements
- Two latest W-2s
- Two latest pay stubs
If the loan also includes your spouse or another individual, they too will have to provide these documents. In case your self-employer, you will be required to submit a few other documents to prove your income. A complete tax return may also be required so that the lender can review the amounts of cash out and cash in.
The refinance process is typically completed in about four to six weeks, but the actual time taken can vary due to several factors. Potential delays may occur due to the involvement of third parties, such as inspectors, appraisers, and title companies.
If your credit report has errors, the process could get held up. If your financial situation undergoes a change, if you obtain a new job or open a new line of credit, it could lengthen the refinance process. You should keep your lender informed of any situations such as this so that they can give you the advice to keep the process going smoothly.
Following the completion of your mortgage application, you can choose to lock your rate. Fluctuations in mortgage rates occur every day, and you can protect yourself against any unexpected major jump in the rate by locking it before you close. Your lender will usually let you lock the rate for a period of 30 to 60 days, but if you need to extend the timeframe later, you may might have to pay a fee.
Appraisal and Underwriting
Once your application is submitted with documents, your lender Intelliloan will work on the loan underwriting process. Your application will have to fulfill the criteria of the underwriter.
An appraisal of your property will be required (the same way as it happened when you purchased your home) to confirm the property value. An inspection of your home will be performed and a comparisons drawn to recently sold, similar homes in your area in order to determine the value.
Following the appraisal and the approval of the paperwork from the underwriter, your refinance process will be nearly complete. Your lender will then schedule your refinance closing, which will be quite similar to the closing you had when you bought the home.
Some Loan Programs do not require an appraisal, check with an Intelliloan Home Loan Specialists first.