Asking yourself, “should I refinance?” There are many reasons you could be exploring refinancing your mortgage as an option, so Mr. Cooper’s here to explain five key steps to refinancing a home. And the good news is, the process isn’t much different from getting a mortgage.
1. Decide What You Want
First, decide what type of home loan you want. Are you more interested in a cash-out refinance, or do you want to change the rate or term of your loan? Are you looking for a fixed-rate loan, or adjustable rate home loan? Think about how long you want to take to pay off your mortgage. Do you prefer a 15- or 30-year term? Is using discount points to lower your interest rate an option? Talk to a lender as you think about all of the options, and ask as many questions as you need to. Mr. Cooper’s experienced mortgage professionals are only a phone call away!
2. Lock Your Rate
The next step is to lock in your interest rate. Since mortgage interest rates change daily, locking in a rate means that you won’t have to worry about your interest rates going up while you are navigating through the steps to refinancing a home. During loan underwriting and processing, rates could fluctuate enough to potentially cost or save a substantial amount of money over the life of a mortgage.
But fear not. It isn’t unusual for lenders to allow borrowers to make changes to the loan after a rate lock. For example, you might be able to change a loan type or amount. You might also be able to decide to pay for discount points. Additionally, lenders might honor market rates if they drop significantly lower.
3. Gather & Submit Documents
The next step is to submit your documents. Refinancing your mortgage requires several things, including bank statements, tax returns, lists of your debts, W-2’s from your employer, lists of assets, your credit report, and other additional documents a lender might request, such as pay stubs. (Your lender will provide you with a list of all required documents.) At this point in the process, a lender is verifying that you have sufficient assets and income to repay the loan. Sufficient savings and good payment history are good to have, too.
4. Review & Get Final Approval
After you submit documents, a mortgage underwriter will review your application. During this process, an underwriter might verify your savings, check your employment history, and review your bank statements to verify deposits. If the underwriter has any questions, they might ask your loan officer to contact you for answers.
Underwriters want to make sure that the loan you want is affordable for you. The mortgage underwriting process might take a few days, but it can take as long as several weeks and timelines will vary because every borrower is different.
Home loans can be approved, denied, or suspended. If your loan is approved, that’s great! You are one step closer to closing. If a loan is suspended, it means that an underwriter needs more clarification about something. If a lender denies a loan, it doesn’t necessarily mean that financing is off the table. Potential borrowers might have to change the conditions of a loan, like lowering the amount, in order to qualify.
Your lender will notify you when everything’s ready and it’s time to close. And just like with your original mortgage, work with your lender to find out closing costs for refinancing. Your old mortgage will be replaced by the terms of your new one, and you will begin paying off your new loan. If you chose a cash-out refinance, you would likely receive your money by check or wire transfer.
By following these five steps to refinancing a home, you’ll hopefully be on your way to achieving your financial goals in no time. If you need to crunch the numbers, try Mr. Cooper’s refinance calculator. You can also get in touch with any questions about refinancing your home loan.