Mortgage Refinance Process

June is National Homeownership Month as it is normally the start of the busy home buying season. Due to coronavirus (COVID-19) and the ongoing shortage of homes, new purchases are down. But the market is still offering low rates that haven’t been seen in years, leading many homeowners to refinance their mortgages.

When you refinance your mortgage, you are replacing your current home loan with a new one. Often people refinance to reduce their interest rate, cut their monthly payments, or to access the equity in their home. You can also refinance so you can pay off your loan quicker, eliminate FHA mortgage insurance, or move from an adjustable-rate to a fixed-rate mortgage.

No matter your reason for refinancing, the process will be very much the same. The average refinance takes between 20-45 days, but often depends on how prepared you are before applying, and how quickly you respond to questions and requests. Here’s how you can prepare if you refinance your home.

Check Your Credit

Avoid surprises when you apply by checking your credit reports to ensure they are accurate. Get your free credit report at annualcreditreport.com. And, due to COVID-19, you may now get weekly free copies of your report.

Set Your Goal

Before you start the process of refinancing, you want to know your end goal. Here are some of the common reasons to refinance:

• Reduce your monthly payment. This can be achieved by refinancing to a loan with a lower rate, or by extending the term of your existing loan. The drawback to extending the term is that you pay more interest in the long run.
• Access your equity. Your equity can be used towards home improvements, or to consolidate higher interest debt. This is called a cash-out refinance.
• Pay off the loan faster. If you can afford an increase to your payment, a great reason to refinance is to go into a shorter loan term. Not only will you pay it off faster, but you will pay significantly less interest over the life of the loan.
• Get rid of FHA mortgage insurance. Unlike a conventional mortgage, your private mortgage insurance (PMI) won’t go away with an FHA loan when your loan-to-value (LTV) drops below 80%. Refinancing your FHA loan when your LTV is below 80% will lower your monthly payments.
• Switch from an adjustable to a fixed-rate loan. Interest rates on adjustable-rate mortgages can go up over time. Fixed-rate loans stay the same. Refinancing from an ARM to a fixed-rate loan provides financial stability when you prefer steady payments.

Use a Mortgage Calculator

Once you have your goal, this helps you shop for the best mortgage. Many calculators also show your “break-even” point so you know how long it will take for your savings to match the fees you will pay for the refinance. You can also use the calculator to compare offers from different lenders to see which one is really the best deal.

Apply for your refinance

Do your research on different lenders to decide where you would like to apply. Compare rates, terms offered, and closing costs to look for your best deal. If you plan on applying to more than one lender, submit the applications within a two week timeframe to minimize the impact to your credit. Have your proof of income and other required documentation ready before applying, and like when you are buying a home, avoid applying for other new credit.

Lock in your rate

Once you decide on your lender, you will lock in your rate with them. This means that the rate cannot be changed during a specific period, and your lender will work with you to get your loan closed before that expires.

Get your home appraised

Before you can close on your loan, your lender will likely require an appraisal be done on your property to ensure the value supports the amount you are requesting. Letting your lenders know of any improvements you have made since buying the home can help increase the appraisal.

Close your loan

This is when you will have to pay all your closing costs, and sign on your paperwork. The process is very similar to when you bought your home, but you already have the keys!

Now that you’re ready to get started on your refinance, get a free quote and get your refinance started with Sandia Area.