Refinancing Requirements and Steps

Mon, 11/02/2015 - 12:00am

When Should I Refinance?

Most people choose to refinance if they need their mortgage payments to be a little less every month or they would like to reduce the amount of interest they pay throughout their mortgage term.

Consolidating a mortgage and a home equity loan to help even out payments is another reason people choose to refinance. Refinancing can be very beneficial to save your hard earned money but it’s important to remember that it is not always the right option for everyone.

If you plan to move in a few years, it may not be worthwhile because it will take some time to recoup the costs.

Refinancing Requirements

Being in good standing with your lender is important when looking to refinance. If you are in default of a loan, you have a slim chance of getting a new loan through another lender.

Equity is another factor lenders look at. Your home must be worth more than you are asking to borrow. Finally lenders will look at your income and costs. They will analyze what you make and what you owe to determine your eligibility.

What Will Refinancing Cost Me?

One thing to keep in mind in terms of costs associated with refinancing is that just as with a mortgage, you will have closing costs. Unless you roll the closing costs into your new mortgage, you may have to shell out money up front.

There can be other fees written in the terms of your new loan so be sure to read all of your paperwork closely. Many sites online offer mortgage-refinancing calculators as a tool to determine if refinancing is worthwhile.

Steps To Refinancing

STEP 1- COLLECT YOUR INFORMATION AND DOCUMENTS
One of the first things that needs to be done to refinance is to gather all of your pertinent documents together.

  • Current mortgage papers
  • Tax information
  • Insurance information
  • Your credit score
  • Pay stubs
  • Savings/investment documents.

This helps lenders determine if you are a good candidate for repaying a loan. Today lenders are a bit more strict in terms of their requirements for loans so it’s important to be able to provide them with as much information as you can to prove you are a good borrower!

STEP 2 – SEARCH OUT COMPETITION
Once you have all your information lined up, the next step is to research lenders’ information. Find out what your options are. Look up several different banks and lenders’ interest rates and closing costs.

Many times people tend to just look at banks but credit unions and mortgage brokers are other great places to look. Partnering with your current loan company could also work to your benefit given your history and relationship with them. They may want to keep you on board and may cut some costs off of your loan to do so!

Related: Mortgage Broker vs. Lender — How to Choose

STEP 3 – LOCK IT IN
After figuring out what lender you want to pursue your refinancing with, the next step is to lock in your rate. Interest rates will always vary so it’s important to keep track of them and lock the rate with your lender right away when a deal shows up. If you do this, it will guarantee that your mortgage will be offered at that rate.

STEP 4 – CLOSE IT UP
Finally, after all the prep work, phone calls and processing you can now close your loan! When you are in the closing process, it is very important to refrain from any large purchases as it will affect your assets figure, which is an important statistic to lenders. Another good idea is to have your lawyer look over your mortgage to make sure its legal and sound. When all this is accomplished, your refinancing is complete!

Additional Reading:

More Articles for Home Buyers 
More Articles for Home Sellers

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