How does refinancing a mortgage work? If you’ve ever gotten a mortgage before, you’ll find that the process is very similar. That’s because a refinance replaces one mortgage with another. With a quick preview, here’s a look at five steps to refinancing a home.
1. Decide what you want out of your refinanced mortgage
Refinances can be approached in more than one way. Some people refinance to lower their interest rate, or to shorten its term to pay it off faster.* Others opt for a cash-out refinance to turn home equity into cash or to consolidate debt.** (In some cases, a homeowner can accomplish this all.) If you need to crunch the numbers, try our refinance calculator. Having clear goals will prepare you for talking with your lender.
VIDEO: What Are Some Reasons To Do A Cash-Out Refinance?
Next, think about factors that will play into your final loan terms, such as:
- Do you prefer a 15- or 30-year term? A shorter term usually has a better interest rate, but a higher payment.
- Are you open to buying discount points to lower your interest rate? One point costs 1% of a loan’s amount. Depending on your market, it usually results in an approximately 0.25% discount. (Example: 1 point would cost $1,000 on a $100,000 loan amount.)
If you apply with Mr. Cooper, we’ll discuss loan considerations more with you. We also walk through some of these questions more in our article covering refinancing tips.
2. Start the application process to refinance
Starting an application can be as quick as a few minutes online or on a call with one of our Mortgage Pros. With some initial information, you can get the ball rolling and learn what loan options are available to you soon thereafter. From there, we’ll take you step by step through the rest of the application process. Looking further ahead, the entire refinance process usually takes 15-45 days after a complete loan application is successfully submitted.
Pro tip: One step to refinance you probably won’t want to skip along the way is locking in a competitive interest rate once you have a good, final loan offer. Mortgage rates can change hourly, so if you’re offered one you like, lock it in. This can help protect your rate until you go to closing.
3. Gather refinancing documents
When it’s time, you’ll need to submit financial documents to refinance to qualify for your loan. As with your last mortgage, these documents can include records like bank statements, tax returns, W2’s, and retirement award letters, if applicable. If it’s been a while since the last time you applied, you may find this process has gotten easier, however. Many lenders use electronic tools to verify things like income and home values where they can. This can save you time.
4. Get final loan 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 also ask your loan officer to contact you for answers.
Underwriters want to make sure that the loan you want is affordable for you. In terms of timing, the mortgage underwriting process might take a few days, but it can take as long as several weeks. Timelines will also vary because every borrower is different.
From there, 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.
All that said, one step to refinance you may be able to skip is an appraisal. This will depend on your loan type and program, but an appraisal may be waived or automated depending on your loan’s requirements. In some cases, an appraiser may be able to do a drive-by assessment.
5. Close on your mortgage
Your lender will notify you when everything’s ready and it’s time to close. Just like with your original mortgage, your lender will share your closing costs for refinancing in advance. (And it may be that you’ll have decided to roll these into your final loan to avoid paying them out of pocket.)
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 will likely receive your money by check or wire transfer.
And there are the steps to refinance your mortgage in a snapshot. Ready to get started? Your options are just a click or call away at 833-702-2511 or online!
Disclaimers
*By refinancing your existing mortgage, your total finance charges may be higher over the life of the loan.
** A cash-out refinance increases your mortgage debt and reduces equity. It may increase the total number and amount of monthly payments, total finance charges, and/or the total amount paid on the mortgage.
Debt consolidation refinances increase mortgage debt, reduce equity, and extend the term on shorter-term debt and secure it with your property. The relative benefits received from debt consolidation will vary. A debt consolidation loan may increase the total number and amount of monthly payments and the total amount paid over the term of the loan. To enjoy the benefits of a debt consolidation loan, borrowers should not carry new credit card or high interest rate debt.