How Does Refinancing A Home Work?
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 30 – 45 days. Let's take a closer look at the refinance 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, we ask for the same information you gave when you bought the home. The underwriter will 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 we might need include:
- Two most recent pay stubs
- Two most recent W-2s
- Two most recent bank statements
We may also need your spouse’s documents (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.
Locking In Your Interest Rate
After you get approved, you may be given the option to either lock your interest rate – so it doesn’t change before the loan closes – or to float your rate.
Lock Your Refinance Rate
The rate lock period depends on a few factors like your location, loan type and lender.
Float Your Rate
You might also be given the option to float your rate, which means not locking it before proceeding with the loan. This feature may allow you to get a lower rate, but it also puts you at risk of getting a higher mortgage rate.
In some cases, you might be able to get the best of both worlds with a float-down option, but if you’re happy with rates at the time you’re applying, it’s generally a good idea to go ahead and lock your rate.
Underwriting
Once you submit your refinance loan application, our lender begins the underwriting process. During underwriting, the mortgage lender verifies your financial information and makes sure that everything you’ve submitted is accurate.
The 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, the value could impact whether you have enough home equity to get rid of private mortgage insurance (PMI) 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. The 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.
How you’ll proceed after the appraisal depends on whether:
- The appraisal matches the loan amount. 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.
- The appraisal comes back low. If you get a low appraisal, the loan-to-value ratio (LTV) on your refinance could be too high to meet your lender’s requirements. At this time, 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 the home appraisal are complete, it’s time to close your loan. A few days before closing, the lender will send you a document called a Closing Disclosure. That’s where you’ll see all the final numbers for your loan.
The closing for a refinance is faster than the closing for a home purchase.
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.
