How to Refinance Your Mortgage
1. Determine Your Target Rate
It is very important to know why you want to refinance your house loan and the goal you want to achieve. Also this decision should always make financial sense. To most people shortening the loan term and lowering payment is always the main goal. Evaluating the goal using a loan calculator will help you observe how monthly payment and interest will change at a lower rate.
Before applying to refinance your house loan it is advisable to request your credit report from Experian, Equifax and TransUnion. Check for any errors and have them rectify them. Better credit score attracts better rates. Research on recently sold houses in the neighborhood which are similar to yours. This will give you a rough estimate value of your home.
2. Choose a Suitable Lender
You will need to carry out a study on the different banks, mortgage companies, credit unions and loan lenders who offer refinancing mortgage services. Compare the rates they are offering and then make a decision. If you still have doubts, ask for help from someone who has got knowledge in loan programs to advise you appropriately. You can also check online for a database of qualified US mortgage lenders.
There are many costs incurred when refinancing a mortgage. It is therefore important to identify them and ensure the lender is transparent about them upfront. These fees include origination, document processing, underwriting, recording, charge application and tax transfer fees.
3. Make an Application for the Loan
After you have successfully identified your preferred lender, you will need to review the loan estimates you receive which includes the loan and a list of fees. Inquire from the lender whether to lock or float your rates.
After applying, you will have to provide your lender with loads of paperwork which you will need to gather. It is important to always provide every page of every document, even if a page is blank. Most lenders will expect W-2 tax forms (for those who are employed), income tax returns (for the self-employed individuals), bank statements, passport or even a driver’s license.
4. Get an Appraisal
You will also require an appraisal. Your lender will order the appraisal and an appraiser will be sent to your home, take pictures and notes, and recommend if either the home is over-valued or under-valued. The appraiser's report can change the terms of the loan and therefore it is important to check and update your estimates and contact the lender in case you need clarification.
Once the lender has received all your paperwork and appraiser’s report, a closing disclosure form will be sent to you. Review the form carefully, sign and the return it to the lender.
5. Close the Loan
The last and final step is known as the closing. You will be required to sign your loan documents at the closing attorney, lender company or online. At this stage, the lender will check your credit and employment to verify that the information has not changed during the application process. The lender then pays off your old loan and new loan recorded in the government record office. You should also expect to pay some closing costs. If you choose to cash out a fraction of your home equity, you will receive a check or wire transfer of the funds. Your lender will keep you informed on how and when to make your new monthly mortgage payment.