Refinancing A Home Loan Process Explained
The mortgage refinancing process is some what more simple than the first mortgage process. But still many request to know what are the stages for a mortgage refinancing process, so they know what to expect, and how to plan ahead. In this short review you can read the step by step explanation of a home loan refinancing process.
The refinancing is easier than ‘mortgage buying’, where you need to move to your new home. The refinancing process is a little bit less hectic, because nobody is moving.
First Step Is Do Your Homework
The homework in the refinancing process, is to do a small research about the money you owe on your current mortgage, the equity you may have built up (or not), the kind of mortgage rates you have (Fixed or ARM) and what are your future goals. Before you even begin the home loan refinancing process you should make sure you don’t owe more than your home is currently worth.
- First of all check how much you owe on your current mortgages.
- Second you need to check the current market value of your home.
- When you have those two parameters – Check you don’t owe more than your home is currently worth.
What are your expectations from the home loan refinancing process? These factors should be taken to consideration, as they are your financial goals. Each goal can trigger different decisions regarding the mortgage refinance process.
- Lower the monthly payments ? By lower rates or extend the mortgage life.
- Change the mortgage rates program (ARM, Fixed, Interest Only)
- Avoid Foreclosure
- Cash-out refinance – Use Refi to pay off other high-interest debts you may have.
Second Step In Refinancing Process – Go Shopping
Just like you do (or should do) when you buy a car or vacation. If you shop for cheap airline tickets worth $2000 you should shop for refinancing mortgage quotes. Sit down beside your computer or smart-phone and apply for some quotes from lenders.
This second step is important, as it will give you a ‘look & feel’ for your next mortgage deal. Send out requests, see what the lenders are willing to offer you. Use the web to search offers from lenders you have not been in touch, as well as lenders who already know you. See the difference, check which lenders send better quotes.
Third Step Refinancing Valuation
You now hold of some quotes, and you have your goal you have set for the home loan refinancing process. It is important to explain, that it might be not worthy for you to refinance. You need to compare the savings from the reduced rates to the cost of refinancing to see if it’s financially beneficial for you.
Forth Step – Lenders Will Be Checking You
There might be some differentiation here depending upon the lenders verifying key data, but at this stage, once you picked a quote the lenders will now begin to check your financial possibilities (unlike pre-approval) they will need to see documentations.
- Within three days you should receive loan disclosures, which you must sign and return to the loan consultant or lender.
- Most lenders will want to appraise the house; if the mortgage was taken long time back and the market value has changed. The appraisal fees & costs will be added to the closing costs.
- A thorough qualification check for income, assets, and FICO score credit report.
- Lenders will request a title search, to determines if there are any other liens (tax liens) on the property.
Fifth Step – Closing Refi Loose Ends
The lenders have finished to gather all the needed information and they are ready to proceed with the refinancing transaction process.
- Assigned underwriter will review the loan file with all the information gathered inside, and request any stipulations (further information/documentation) to provide a final approval.
- The finished loan documentation is created and sent to the party closing the loan. This may vary by state but in most cases it can be a title company, attorney or notary public.
The final step in the home loan refinancing process, is the 3 day rescission period. During this time you can evoke your right to rescind (cancel) your mortgage loan. After these three days, the new home loan will be finally processed and approved and you have full legal liability for paying it back as agreed.
Congratulations – Refinance Process Completed
The new lender will payoff the full remaining mortgage amount to the current mortgage company. The new title is recorded and you have finished the whole mortgage refinancing process, and will get the funds of the new home mortgage loan.
So What Can You Do To Improve Your Situation?
If you will do nothing.. don’t expect anything to happen. The best advice is to bump your credit score up! It will give you better leverage when facing the lenders, and better negotiation position when applying for any financial need.
Lets not forget you are probably paying $500-$1000 extra per year in higher interest rates, and credit payments.
If your score is below 700, you might want to clean it yourself – get this ‘Credit Repair University’ which will save you money and time.
Yes, you might need to invest a small sum to get a grip of things.. But if you think education is expensive.. try ignorance..
You are probably paying thousands of dollars per year in fees and interests to credit companies which could be going straight to your pocket. Don’t be cheap when it comes to financial education..
Ignorance costs more.