Deciding to refinance a home loan is a big decision influenced by your financial situation, available interest rates and your long-term plans for staying in the home. Once you've decided to start the mortgage refinance process, it's important to understand what is involved.
Review this checklist to make sure that you have all needed documents and information to apply.
To apply for refinancing, you will need to do some of the same things you did when you got the mortgage to buy your home. This includes proving your identity, documenting your income and assets, and showing that you're able to repay your new mortgage. You will need documents like:
We'll also need information on the mortgage that you'll be refinancing.
Shortly after you complete your application, we'll provide you with a formal estimate of your closing costs, called a Good Faith Estimate. You'll also receive a Truth-in-Lending Statement, which summarizes your loan terms, interest rate and finance charges to show what the total cost of borrowing will be.
Finally, decide when to lock in the interest rate on your new loan. Rates can change daily, so it's important to watch trends and use a break even calculator to see if refinancing is worth the cost. If it looks like rates will drop, you may want to wait. If rates are rising, lock in as soon as you can. Typically, you can lock in a rate any time between the submission of your application and five days before closing.
There are several players in the next part of the mortgage refinance process.
Loan processor - Gathers all necessary documents to process your loan.
Underwriter - Evaluates credit, assets, debts and the property appraisal, then decides whether to approve your loan.
Title company - Checks the title of the house to make sure it's free of liens placed by other interested parties.
Appraiser - Determines the fair market value of the home. You may or may not need to get a full appraisal done, depending on the circumstances.
Homeowners insurance agency - An agency, chosen by you, that will insure the home against damage or loss. This can be the same agency that currently insures your home, as long as you are able to provide proof that once you close on your new loan, the home will still be covered.
You'll receive a HUD-1 Settlement Statement before closing that will list all of the costs, credits and fees needed to close. It's similar to the Good Faith Estimate you received when you applied except now the costs have been finalized.
As you may remember from your previous mortgage, on closing day of the mortgage refinance process you'll have plenty of documents to review and sign. The closing attorney or settlement agent will go over all of them with you and answer your questions.
After you sign the required paperwork and pay your closing costs (depending on how much they are you might need a bank-issued check), it will take about four business days for your refinanced mortgage to take effect. That's because by law you have three business days to change your mind and rescind the new loan. After the "rescission period" has ended, the lender will then set up your loan for servicing and establish an escrow account An escrow account is a separate account that your lender sets up to hold the money it collects each month for your real estate taxes, homeowner's insurance premiums and, if applicable, flood insurance and/or mortgage insurance. The lender takes your estimated annual real estate taxes and insurance premium expenses and divides that amount by 12. This amount is added to your monthly mortgage payment. for your real estate taxes and insurance.
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