Refinancing a mortgage means you’re replacing your current loan with a new one, so you’re going to be required to produce much of the same information you needed when you got your original mortgage.
The better prepared you are on your end, the smoother the process will be. Currently, it’s taking on average 52 days to close on a loan, according to the latest data from Ellie Mae. That’s longer than usual, thanks to the ultra-low mortgage rates we saw early this year.
Regardless of the amount of people currently refinancing, there are ways to save time. Read on to learn how to refinance, what steps you’ll need to take, and tips to speed up the process.
How to refinance a mortgage
Before you refinance, you need to understand why you want to do it in the first place. When you bought your home, you got your original mortgage to pay for it. When you refinance, you’ll be getting a new mortgage that will pay off the old one. Why do people choose to do that?
Reasons to refinance:
- Lower monthly payments: Refinance to a loan with a lower interest rate, or switch your loan from 15 to 30 years to lower your monthly payments. With the super low interest rates recently due to the pandemic, many homeowners chose to take advantage of the rates and refinance.
- Pay off the loan faster: On the other hand, you can pay off your loan in half the time if you switch to a 15-year loan from a 30-year. Your monthly payment will likely go up, though.
- Tap into home equity (cash-out refinance): With home prices rising in a competitive market, you can take advantage of your home’s equity. Equity is the difference in the amount that your home is worth compared to what you have left to pay on your loan. By cashing out, you can use those funds to consolidate debt or for other projects.
- Switch to conventional loan from FHA loan: Many new homeowners start with a Federal Housing Administration loan, because these government-backed mortgages help make home-buying affordable. However, they come with costly insurance premiums. Switching to a conventional loan will help.
- Switch from adjustable-rate to fixed-rate loan: Interest rates on fixed-rate loans stay the same, while adjustable-rates might go up over time. You may want to lock in current rates to avoid this from affecting you in the future.
Just like when you got your original mortgage, you’ll have to qualify for your new loan. You’ll file another application, and go through the underwriting and closing process.
The best course of action when choosing to refinance is to reach out to a trusted mortgage loan officer as soon as possible. Their industry knowledge and honest advice can help you avoid making costly mistakes on this important decision.
Steps in refinancing
Breaking up the refinance process into simple steps will help you stay organized — which will help the entire process move along much smoother. Often, refinance delays are due to loan officers waiting on actions from the lendee.
1. Know your purpose
Establish your refinance goals first, because your purpose affects whether you qualify. Take stock of your personal finances once again, because your loan officer will need to see your:
- Credit score
- Income and employment
- Debt-to-income ratio (DTI)*
Make sure your credit score is solid, you’re earning a consistent income, and your debt situation is under control and still at a qualifying percentage.
*Debt-To-Income (DTI) ratio is monthly debt/expenses divided by gross monthly income.
2. Work closely with your mortgage loan officer
Not only will your loan officer be able to help you make sure you qualify, but they can offer guidance and advice on whether refinancing is a smart move for you at this point. If not, they can help you plan and prepare for a time when it will make sense.
Complete the mortgage application with your loan officer. Make sure you read everything very carefully and understand all items before signing. Don’t be afraid to ask questions at any point during the process for clarification.
After applying, stay in close contact with your loan officer to ensure they have everything they need from you.
4. Gather your documents
Mortgage approvals often can be delayed due to issues with paperwork. With the guidance of your loan officer, be thorough when collecting your documents to avoid slowing up the process.
Gather the following documents:
- W-2s from past two years
- Most recent pay stubs
- Most recent bank statements from every account
- Award letters for pensions/benefits
- Debt statements
If your lender reaches out because something is missing or needs to be signed, act quickly to avoid further delays.
5. Prepare for appraisal and closing
If you need an appraisal, make sure your home is in great shape, and you’ve completed any maintenance, yardwork, or painting prior to the appraisal.
Once the appraisal is complete, and all other conditions are satisfied, you will be contacted to schedule the closing date.
How long does it take?
Normally, it takes 30 to 45 days to refinance. However, recent data has shown it took an average of 52 days to close in March due to the high number of homeowners who chose to refinance during record-low rates.
Rates are now up from those record lows, though, which has caused some homeowners to back off of refinancing for the time being. But this doesn’t mean it’s now a bad time to refinance.
Rates still are expected to remain low, which means now might be a great time to refinance and save some money on your mortgage — without the delays from the rush of people who refinanced in the past few months.
How to speed up the refinance process
Solid preparation before application will help you speed up the refinance process. Be aware of your credit score, and make moves to keep it stable while you apply. Prepare all paperwork prior to application, and if your lender needs additional documentation or information, supply it to them as soon as possible.
The best way to speed up the refinance process is to work with a trusted loan officer. The Homefinity team has an average of more than 15 years of experience, and strives to bring honesty, respect, and humility to every interaction.
Reach out to us today to get started on the refinance process. We look forward to helping you achieve the rates and terms that work best for your life.