The Home Refinancing Process Made Simple
With today’s extremely low rates, a home mortgage refinance can save many homeowners hundreds, if not thousands, of dollars per month. Furthermore, because fixed rate loans are readily available for qualified borrowers, today’s low rates can be locked in for as long as 30 years.
Before the Refinance
Before getting started on a new loan, homeowners should use a mortgage refinance calculator. Using one of these sites will give them a good sense of how much they stand to save. Homeowners whose stand to save very little by refinancing should give it careful thought before proceeding. Doing a refinance means restarting the 30 year clock until the home is paid off, and paying off a house 2 or 3 years sooner may be worth paying an extra $20 or $30 per month after taxes.
Necessary Materials for a Refinance
When a refinance makes sense, homeowners should get ready. In today’s difficult lending climate it is almost impossible to get a loan with a smile and a signature. Every person who will be on the loan should collect the following items:
- Two most recent pay stubs (four is preferable)
- Checking account statements for two months
- Savings account statements for two months
- Retirement and/or investment account statements for two months
- Tax returns for last three years
- Existing mortgage or trust deed and promissory note
- Statements for all other debt obligations like car loans, credit cards or student loans
- Current property insurance declarations page
Lenders’ documentation needs vary greatly, but having all of these items should cover all of them.
Finding a Loan
In today’s market, there are a vast number of loans available. One of the easiest ways to find the right loan is to work with a reputable mortgage broker. Brokers can shop among a number of different loan programs to find the best one for a given borrower’s situation. This can include VA loans for veterans, FHA streamline refinances which do not require appraisals and conventional mortgages.
Applying for the Loan
With many loans, the borrower does not technically sign the application until closing. However, at the beginning of the process, the borrower will usually sign a Good Faith Estimate, which outlines the costs of the loan, and provide a good faith deposit check. If the loan is structured with costs to the borrower, it will be applied to the costs, and if it is a zero cost loan, the borrower will usually receive a check at closing. Once the lender receives the good faith deposit, signed estimate, and the borrower’s financial information, they will begin the underwriting process. The underwriting process consists of putting the package together and reviewing it to ensure that the loan can be approved. For borrowers with credit issues, this process frequently involves clearing issues off of their credit reports.
Underwriting can also require an appraisal report. An appraiser is a person who visits the home, inspects it and its area, and prepares a report as it its value. Borrowers should ensure that their property is neat, clean and in as good a shape as possible before the appraiser’s visit to increase the likelihood that the value placed on the home will be adequate to support the loan.
Getting the Loan
Once the package makes it out of underwriting, it gets sent to the lender. Assuming that the lender approves it, they will then begin generating a set of documents for the borrower to sign at the closing. In addition, the closer will order a pay-off amount from the previous lender and begin drafting the document, called a reconveyance, to remove them from the property.
Guided by their loan broker or attorney, the borrower goes through and signs a number of documents including, but not limited to:
- Lending disclosures
- An application form
- A promissory note
- A mortgage or trust deed
Once all of the documents are signed and in some cases notarized, the loan will “close.” This means that the money gets transferred to pay off the other lender, their security instrument on property gets removed and the new lender’s right to the property gets established. The borrower is now covered by the new mortgage and is ready to enjoy their new, lower payment structure.