Refinancing your home can help you leverage your investment. With refinancing, you may be able to lower your monthly payments, shorten your loan term or even get cash from your investment.
What is refinancing?
The process of refinancing your mortgage requires you to apply for a new loan for your home. The new loan will then pay off your previous loan. When you refinance your home, the balance still leftover is then paid back with one monthly payment.
With a mortgage refinance, you can get better mortgage rates. This will then lower your home loan’s interest rate, saving you money in the process. In addition, you may want to explore a cash-out refinance to take advantage of the equity in your home.
A refinance on your mortgage allows you to lower your fixed living expenses. The process can be time-consuming and tedious, but can save your wallet in the long term.
Reasons to refinance:
- Changes your interest rate and loan terms: Over time loan rates and loan terms can change. If current mortgage interest rates are lower or if your monthly mortgage payment is too high, a rate and term refinance may be able to help. It is important to remember that in this type of refinance, the principal balance stays the same, but your monthly payment and your interest rate can change, which can actually save you money. You can also lengthen or shorten your loan terms when you refinance.
- Cashing out on your home’s equity: You can also cash out on equity in your home; equity is the percentage of your home that you own. By accepting a higher loan principal, you can take the remainder away in cash to use – this money can be used for almost anything, including paying off other debts or home improvement projects.
Preparing for a refinance
Preparations to refinance your mortgage will help you determine the right lenders and you prepare for the lengthy process.
The first step to refinancing requires you to look at your personal finances and define any financial goals you wish to complete. This may include reasons why you want to refinance and determine your ideal results. After this, begin searching for lenders that will help you meet your goals. Be sure to check out reviews and reach out to potential lenders for more information about rates, terms and their refinance requirements.
After this, weigh out each of your options, taking into account any extra fees and additional costs. Budgeting for these expenses ahead of time can also make the refinancing process run more smoothly and can help you avoid any surprise extra expenses.
The next step is simply to apply to the loan that fits your needs and goals the most. Be sure to submit all necessary documentation including income claims, credit scores, assets, etc. You will also need to get an appraisal value of your home after the loan is approved.
Unfortunately, after this point, there is usually a waiting time when all of your documents go through a verification process for final approval. This process alone can take a few weeks.
After this, all you need to do is wait for an approval to come your way. Once you agree and lock in your rate, you will need to settle your current loan with a lawyer. Be aware, many extra costs can come up during this process, including closing costs, application fees and other hidden fees.
How long does a refinance take?
Although there is no sure-fire way to determine how long a refinance will take, they will typically take anywhere from 30 to 45 days to complete.
Because a refinance relies on third-party services such as inspections and appraisals, unforeseen delays can occur. In addition, the size of your home or your property or your finances can also change the refinance process.
In addition, refinancing can affect your credit score because they usually require a hard credit inquiry. By preparing the necessary documentation early, you can help speed up the process.
Ways to quicken the refinance process
If you are planning to refinance with a mortgage lender, there are a few ways you can make the process run a little smoother. Here are our best tips to speed up the refinancing process to save you time:
Gather paperwork ahead of time
Rounding up all the paperwork you will need before you meet with your lender will help speed up the process a lot. Be sure to also be familiar with your state’s refinancing loan requirements to ensure you have all the necessary documentation.
Chances are, you will need the following documentation when you refinance your home:
- Proof of income – including paystubs, tax returns and other tax forms
- Proof of insurance – including homeowners insurance and title insurance
- Assets – including current bank statements with your financial assets like savings, stocks, CDs, 401K, etc.
- Current appraisal of your home
- Credit information – including your current credit score, credit reports and monthly debt load or other bill expenses
Avoid applying for new credit or taking on new debt
Applying for new credit lines or taking on new debts before you refinance can lower your credit score and decrease your chances of approval. Before you refinance, taking a look at your credit and paying down your current debts can help you lock in your rate for the best interest rates possible.
Double-check your credit score
Similar to avoiding new credit and taking on debt before you refinancing, taking a look at you
Accommodate your lender
By accommodating your lenders, you make the refinance process much easier on not only them, but also for you.
Wrap-up
Refinancing your home can be a time-consuming process. But, refinancing your home will be beneficial if you want to save money. Check out this loan calculator to get a loan estimate for your expected payment plan for your refinanced mortgage.
If closing costs are keeping you from refinancing, there are options out there without these extra upfront costs.
