When you refinance, you pay off your existing mortgage and take out a new loan. The process for refinancing is similar to what you went through when you got your original mortgage. However, depending upon the type of refinance mortgage you choose, there may be less documentation required.
If you are acquainted with the steps in the refinance process, you will be better prepared to know when to refinance. Here are the four steps you should follow when you refinance.
- Check your credit
- Look at your finances
- Apply for a mortgage
- Prepare for closing
Refinancing is typically simpler than obtaining a mortgage to buy a house because you can schedule closing without having to select a property, negotiate a sales price and coordinate a closing date with the seller. Depending upon the type of refinance mortgage, you may not need to have your property appraised.
Check Your Credit
Checking your credit is a good place to begin the refinancing process. Your credit score is based on several factors, including how much debt you have, your credit history and whether or not you pay your bills on time.
Your credit history can affect whether or not you’ll meet the requirements for a mortgage loan and, if so, what types of loan programs your lender is able to offer you.
- You can get one free credit report each year at www.annualcreditreport.com; read through it carefully and make sure there are no mistakes, as that could affect your score.
- If you have already obtained a free credit report within the last 12 months, you may have to pay a fee to obtain your credit score
Once you have an updated report on your credit, you are ready to move on to the next step.
Look at Your Finances
Next, take a look at your financial obligations. Make a note of all of the debts that you have, and how much interest you are paying on each type of debt. Look at your monthly income as well as your expenses.
Then, decide your financial goals.
- Do you want to pay off high-interest debt?
- Do you have enough income to pay off your loan sooner?
- Do you need to reduce your monthly payments to meet your budget?
The answers to these questions will help you determine when to refinance.
- If you have equity in your home and you are making payments on credit cards or other high-interest loans, you may benefit from paying down debt by obtaining an FHA Cash Out, a VA Cash Out or a Conventional Cash Out Refinance
- If you need to lower your monthly payments to meet your budget goals, or refinance to reduce the amount of interest you pay over the life of your loan, you may be able to do so with an FHA Streamline, a VA Streamline or a Conventional Rate and Term Refinance
You can use our Refinance Mortgage Calculator to help you get a rough estimate of your monthly mortgage payment if you were to get a refinance mortgage. However, to explore your refinance options in detail, it is best to speak with a licensed loan officer at Freedom Mortgage.
Apply for a Mortgage
Once you have looked at your financial situation and decided when to refinance, the next step is to contact a trusted lender and apply for a mortgage.
Keep in mind that if you are going to take advantage of the easier qualifying features and other benefits of VA or FHA loans, you will need to find a VA-approved or FHA-approved lender.
Freedom Mortgage has been a VA-approved lender for more than 25 years. In addition, Freedom Mortgage is an FHA-approved lender who can walk you through the FHA mortgage process, even if you have not applied for an FHA loan before.
When you apply for a refinance mortgage, your loan officer will ask you questions about your income, debts and expenses.
You also may be contacted by a loan processor who may ask for additional documents including W2s and verification of employment. All of the professionals at Freedom Mortgage will work closely with you to prepare you for closing.
Prepare for Closing
Closing (or settlement) is the final step in any real estate transaction, even if you are just refinancing. Prepare for closing by making sure you know what to bring, including:
- Government-issued photo ID for borrower and co-borrower
- Cash necessary for closing costs (typically a cashier’s check; not a personal check)
- Binder for homeowners’ insurance (hazard insurance) and paid receipt
There will probably be other items as well. You will be given a list of items to bring to closing. Also, you may want to avoid opening a new credit card account, buying a car or making any other large purchase prior to closing, as that could change your financial circumstances and potentially delay closing.
Depending on the type of refinancing you obtain, you may be required to pay the following fees as part of closing costs:
- Title search and title insurance costs
- Application fee
- Appraisal fee
- Loan processing fees
- Closing agent fees
Depending upon your financial situation, refinancing may be a very smart move. Once you understand these four key steps in the refinancing process, you’ll know when to refinance.
Find out more about refinancing. Call Freedom Mortgage today.