I am hesitant to even post about this because I’m almost certain I’ll receive a slew of spam messages and emails asking me if I’m interested in refinancing…but, I feel it’s necessary given the purpose of this blog. So here goes it.
We have wanted to refinance for a while. For 1, my husband originally purchased the house 4 years ago and had a high interest rate (like, really high)…and 2, we wanted to do a cash out option to put some money back into the house. FYI, another alternative to cash-out would be a home-equity loan, but sometimes these can have higher interest rates and other terms that weren’t ideal for us. Since we wanted to refinance already, it made sense to pull equity from the value of the home and invest back into the improvements.
It’s been a long process and we’re just finishing it up (a month later). Such is the case with any such loan or financial obligation. The paperwork is insane. It’s taken me weeks to get everything together, and often times there were deadlines that required me to get all of the information together quickly….so, here are some tips on how to make the refinancing process much, MUCH easier on yourself.
To-Do In Advance:
- Check for the best rates: Use bankrate.com and then gather some rate quotes to find the best lender. Keep in mind that any inquiry on your credit report will show up on your report so, it can have an impact on your score.
- Check your credit report: Review any negative accounts and determine what these entries are and why they are in collections. You’ll likely have to explain these to the mortgage company, but you might also be in the position to pay these off and clear them from your report- to improve your score.
- Organize your financial paperwork and other documentation: you’ll need to provide W2’s, paystubs, and other proof of assets and liabilities. It’s best to get these together in advance so that you’re prepared for whatever they ask from you…it can be a lot.
Starting the Process:
- Complete the Application: Once you’ve found a mortgage lender (and you’ve done your research about them and their rates) it’s time to start the application process. You’ll be asked to provide details about yourself and your property. I found it helpful to pull my property record from the county auditor’s website- it’s gives you some valuable details about your property (some of which you might not have recorded anywhere else).
- Review other Important Documents: The lender should also provide you with several other important documents (required by law), which you should carefully review before moving forward. For example, you should receive a Truth in Lending statement and a Good Faith Estimate- visit the Consumer Financial Protection Bureau for more information about these documents.
- Title Services: You’ll have to work with a title company, often time determined by your mortgage lender, who will be responsible for making sure a property title is legitimate, so that the buyer may be confident that once he buys a property, he is the rightful owner of the property. They review property records, review the title, issue insurance policies (when necessary), facilitate closings, and file and record paperwork with the city etc.
- Appraisal and/or Inspections: You’ll most definitely have to get an appraisal, something most mortgage lenders will facilitate for you, and you might also have to get an inspection (either a complete home inspection or a pest inspection). The cost for these may be part of your closing costs, or you may be required to pay for them separately. Make sure you know ahead of time how these are to be paid…some mortgage lenders may allow you to shop around for the best prices for these services, allowing you to choose the vendor yourself.
- Submit Documentation: As I mentioned above, you’ll be required to provide proof of income, assets and explain any liabilities, including those that appear on your credit report. Click here to see a list of some of these documents/information.
- Submit your Application: Once the application is complete and you’ve reviewed and signed the important documents, you’ll submit the entire packet to consent to the terms of the loan. A Loan Processor will review everything to make sure that it’s complete and then they will submit to an underwriter who will make the final decision on whether your application is approved.
Once the underwriter has approved your loan and supporting documents, you’ll work with the title company to setup a closing date. At closing, or just before, you should receive a HUD-1 Settlement Statement and any other disclosures required by state law. Also, your mortgage servicer will establish an Escrow to manage your monthly payments- they will provide you with an Initial Escrow Statement which will outline estimated taxes, insurance premiums, etc. Lastly, you’ll review your final closing costs and sign paperwork to finalize the loan and agreement.
As I said, it’s a time-consuming process, but in most cases it’s worth it. We’re hopeful that we’ll be able to use some of the cash to make the necessary updates and improvements in our home…increasing it’s overall value.
Disclosure: I am not a mortgage expert or broker nor am I a financial advisor or affiliated with any such job or service. The information I provided above was based on my personal experience in refinancing and it may vary by individual, state or mortgage lender. Please consult with a professional before starting the mortgage or refinance process.