So, you want to refinance your mortgage. This is a great option for many homeowners who are looking to lower their interest rate, lower their monthly mortgage payments, or pay off their loan quicker.
The refinance process is similar to when you get a mortgage for buying a house, so you’re probably already somewhat familiar with what the mortgage lending process looks like. However, you should consider doing these things first to make getting approved for a refinance easier down the road.
Determine why you want to refinance.
Simply put, refinancing your mortgage loan can save you money. But more specifically, it can help you achieve a variety of different goals.
For example, if mortgage rates are currently lower than the rate on your home loan, refinancing can offer you a better rate – saving you money over the life of the loan.
You can also do a cash-out refinance, which allows you to use your home’s equity as a cash advance for things like paying down other debts, college tuition, large purchases, etc.
Some other ways a mortgage refinance could benefit your situation include:
- Eliminating private mortgage insurance (PMI)
- Reducing your loan term
- Funding home renovations
- Changing your loan type
If you have an idea of why you want to refinance, it can help your loan originator provide the best possible loan solution for your unique situation.
Save up for closing costs.
Many homeowners don’t realize that when they refinance their loan, there still may be closing costs and fees that apply to the loan – even though they aren’t purchasing a new house. If you’re considering refinancing your mortgage, make sure you prepare for closing costs and have money set aside.
Wondering if the money saved with a refinance will outweigh the closing costs? Our refinance calculator will show you how much you can save on your monthly payment and when you’ll break even.
Make sure your credit report is in good shape.
When you’re in the process of getting a home loan (whether it’s purchase or refinance), you’ll want to make sure your credit usage remains business-as-usual. Avoid making any large, unordinary purchases – like a car – or co-signing on any other loans. You should also avoid closing out any old credit cards. Suddenly increasing your credit usage could negatively impact your credit score.
Now more than ever, it’s important to pay all your bills on time and in full, if possible. Of course, the best case scenario is a long history of on-time payments, but this is especially important leading up to applying to refinancing your home loan.
It’s also a good idea to make sure there are no errors, such as incorrect personal information or negative marks that shouldn’t be there.
Prepare for your home appraisal.
A big part of refinancing your mortgage is getting your home appraised. This will determine the current value of your home.
Your appraiser will look at things like…
- General condition of the home
- Any home improvements, upgrades, and renovations you’ve completed
- Square footage, number of bedrooms/bathrooms, etc.
- The neighborhood and lot size
To prepare, make sure your home is clean as can be (including the exterior). You can also use this as an opportunity to take care of minor projects – you know, those things you’ve been putting off for who knows how long – like touching up the paint or fixing that leaky faucet.
Don’t forget to document any renovations or upgrades you’ve made. This will help your appraiser better assess the home’s value.
Gather your documentation.
You’ve bought a house before, so you’re no stranger to the documents required for your home loan. Having documentation prepped and ready ahead of time will save you from scrambling down the road.
As a reminder, some documents you’ll need to provide include:
- Copy of your driver’s license
- Last 2 years of W2 statements from your employer
- Last 30 days of pay stubs
- Last 2 months of bank statements (both checking and savings) – all pages
You will likely need to provide additional documentation, but your loan originator will outline all of that during the application process.
Once you’ve gotten everything in order, find a loan originator in your area to officially get started with your refinance. Or if you have any questions, don’t hesitate to reach out to a local home loan expert.