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The 4 Stages Of Refinancing Your Home

Refinancing your home can offer several benefits, including lower interest rates, different loan terms, and cash in exchange for home equity. But refinancing your home can also be a complex process, and you should carefully consider, research, and plan it. Refinancing your home typically happens in stages, and here are four common phases to expect.

Stage One: Determining if Refinancing Your Home Makes Sense
Refinancing can offer you significant savings, but it is important to do your homework and consider your options before you make a decision. Consider if you could benefit from refinancing your home by answering questions like:

  • Will I be able to reduce my monthly payments?
  • Can I get more favorable loan terms?
  • Am I refinancing for the right reasons, like to consolidate high-interest non-mortgage debt?
  • How will the terms of my new mortgage be different from my original home loan?

Once you have answered these questions, you might have a better understanding of whether refinancing your home makes sense. Part of your research during this stage should include getting in touch with a mortgage lender like Mr. Cooper to discuss your refinancing options.

Stage Two: Considering the Cost of Refinancing Your Home
There are costs involved with any loan, including a refinance. Costs can differ from lender to lender, but some possible costs include:

  • Mortgage application fee
  • Credit reporting fee
  • Appraisal report
  • Discount points
  • Loan origination fee
  • Inspection fee
  • Survey fee
  • Title search fee
  • Title insurance
  • Recording fee
  • Closing/settlement/attorney fee
  • Flood certification
  • Escrow deposit
  • Homeowner’s insurance
  • Property taxes
  • Private mortgage insurance

Remember that you will pay some of the closing costs to the lender and others to third-parties. (For example, you would pay discount points to your lender, but you would pay a third party to perform a home appraisal.)

Stage Three: Preparing To Refinance Your Home
Once you have spoken to a mortgage lender and decided to refinance, the next step is to prepare for the process. Adequate preparation could increase the chances of a timely loan approval, and there are some steps you can take to get ready for the transactional aspects of refinancing your home.

  1. Check Your Credit Score: Your credit score has an impact on whether you will qualify for a refinance, as well as on interest rates available to you. When planning to refinance, it is a good idea to check your credit score in advance and contact the credit bureaus to get any errors that you see quickly resolved.
  2. Understand Home Equity: Home equity is an asset that comes from your ownership in your home. To calculate home equity, subtract any outstanding loan balances from your home’s market value. Cash-out refinancing allows homeowners to trade some of their home equity for cash.
  3. Gather Required Documents: Mortgage refinancing usually involves a fair amount of paperwork, which allows the lender to verify your income, debts, and assets. Some of the required documents have to do with your current loans, your income, and your bank, savings, and retirement accounts. To get an idea of what exactly you will need, ask your lender for a complete list of required documents. Having them ready could help your application go as smoothly as possible.

Stage Four: Avoiding Mistakes When Refinancing Your Home
It’s possible to make mistakes if you are not careful about how you approach the refinancing process. Some of the more common mistakes include:

  • Not doing your homework. Research what you can and ask your lender any questions.
  • Not checking your credit before refinancing to avoid any surprises.
  • Opening new lines of credit shortly before or during refinancing.
  • Running up debt during the application process.
  • Failing to consider the pros and cons of refinancing your mortgage

With these things in mind, you can carefully consider your decision to refinance your home and hopefully avoid many surprises along the way.