Mortgage refinancing is the process of replacing an existing mortgage obligation with another, with different, usually more attractive terms. A refinance may be used to move your debt from a risky adjustable rate mortgage to a more conservative fixed rate term mortgage. This guide to refinancing a home will give you a few quick steps you can take to prepare yourself for the refinance process.
Step 1. Do your Homework
First, understand what you are currently paying for your mortgage. You'll need to be able to answer the following questions before you can begin to refinance a home:
- What is your current mortgage interest rate?
- How many years do you have left to pay it off?
- How much money do you still owe on the home?
- What is your monthly interest payment?
- What is your monthly principal payment?
If you can't answer these questions, take a close look at your last payment statement. If the answers aren't clearly marked on the statement, give your mortgage writer a call and ask them to explain. You'll be answering these questions again when you start comparing offers from competing banks and mortgage brokers.
Step 2. Be Prepared
The more prepared you are for the mortgage application process, the better chance you'll have of getting a great home refinance loan. Mortgage rates change quickly, and it's important to be able to take an opportunity when it comes along. In addition to the questions in step one, you should be prepared with the following:
- Find out your current FICO Credit Score and Debt to Income Ratio
- Get a copy of your most recent pay stubs and the past two years' tax returns and bank statements
- Find a Title Search Company and Real Estate Lawyer
Step 3. Act Local
Refinancing a home, like getting your first mortgage, can be very stressful. Working with a local bank or mortgage broker can help minimize the stress. By establishing a face-to-face relationship with your bank or mortgage broker, you'll be able to step confidently through the process. Most importantly, you'll have an office to visit if something goes wrong.
Step 4. Lock it in
Once you find a bank or broker which makes you happy, you are ready to lock in the rate. This non-binding commitment will start the process and have you on your way to home refinancing.
Step 5. Get Appraised
The mortgage broker will ask to send an appraiser to your appraise your home. This is meant to move you to action and lets the broker know that you are serious about refinancing your home.
Be careful. Although the appraisal doesn’t legally bind you to work with a specific broker, it does lock you in to spending $300. Make sure you've found the right company to work with before approving the appraisal.
Step 6. The Closing
Once you are locked in, appraised and have submitted your paperwork, you are ready to go. You'll need to stay in touch with your mortgage provider and work with them to close the loan. It's a lengthy process that can be tricky to navigate; respond promptly to requests for more information, stay in touch with your mortgage processor, and remember, don't panic.