In today’s hot real estate market, refinancing your mortgage is a great way to use the equity you have put into your home to lower your monthly payments, shorten the term, or even access cash. Here’s how to refinance a home in 5 steps:
How to Refinance a Home
Step 1 – Apply to Refinance
After weighing your options and deciding to refinance, the first step to refinancing your home loan is the same as the first step you took when applying for the mortgage in the first place – you need to apply to lenders.
Like with the original purchase, lenders will look at your proof of income, your credit score, and other relevant info. If you have been paying off your existing mortgage, this will help you apply.
Note: you don’t need to apply with your current lender.
Step 2 – Lock in Your Interest Rate
Once you’ve been approved for refinancing, it’s typically a good idea to lock in your interest rate before closing. This will guarantee that you get the rate when you finalize the loan. Interest rates can be locked for up to 60 days, depending on the lender, the type of loan, and where in the country you are located.
Wondering how to refinance a home without locking your interest rates? You can do this by floating your rate. This means that you will get the rate offered at closing, which may or may not be lower than the original rate.
Step 3 – Get Verified by Your Lender
Like with your original mortgage, approval is only part of the process – underwriters still need to verify your financial information as well as information about your property and the original purchase.
This step is mostly handled by underwriters at your lending institution. You will need to be available to answer questions and provide supplemental documents, so don’t plan any trips off the grid or out of the country.
Step 4 – Home Appraisal
When you refinance a home, you are using the value of your property and the money you have already put into your purchase to negotiate better terms. One of the most important steps is the home appraisal. If the home’s value is determined to meet or exceed the amount of your loan, then you are good to continue to the next step.
Step 5 – Closing
Once your lender has done all their due diligence and given final approval, it’s time to make things official. Closing on a refinanced loan is similar to closing on the original sale with one key difference – you don’t need to rely on the involvement of a 3rd party seller, since you are not assuming ownership for the first time. There is still some important legal paperwork to sign, but the process is relatively straightforward.
There you have it – how to refinance a home in 5 steps. If you need further clarification or assistance, don’t hesitate to reach out to a mortgage broker. It’s our job to help all this make sense for you.
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