When you own a home, there are many different decisions that you will make. These range from small decisions surrounding design to large financial decisions. One of the decisions you make may be deciding to go through the process of refinancing your home.
Your home, ultimately, is an investment. One of the best ways to leverage that investment is to refinance it. When people refinance their homes, there are many benefits that they reap. These include lowering your mortgage payment, getting cash from your home, or even shortening your loan term.
What Does it Mean to Refinance Your Home?
When you decide to refinance your home, it means that you are basically trading your current mortgage for a new one. This new mortgage will have different terms than your old mortgage.
For example, the new mortgage will likely have a new principal and a different interest rate.
People go through the refinance process for many reasons. You may refinance your home to get a lower interest rate. Or, you may refinance your home to shorten the loan term. A Cash-out refinance can make use of your home’s equity.
Refinancing a mortgage can also be used to add or remove people from a mortgage. In cases of divorce, a refinance can remove an ex-spouse. Or, someone can be added to a refinanced mortgage.
How the Refinance Process Works
Compared to the home buying process, the home refinance process is often less complicated. It includes many of the same steps and takes around 30 to 45 days to complete. Here, we break down each step of the refinance process in detail:
Once you have reviewed the types of refinancing that are available and found the option that works best for you, it is time to apply. When applying, the lender will ask for the same information that your original lender asked for when you initially bought your home. Usually, this will include information such as your income, assets, debt, and credit score. This information helps the lender determine whether or not you can pay back the loan and whether you meet the requirements to refinance or not. Some of the documents they may ask for include the following:
- Recent pay stubs
- W-2 forms
- Bank statements
- Tax returns
- Business income statements
- Investment account statements
- Alimony and child support information, if applicable
- Copy of your government-issued photo identification
- Proof of legal U.S. residency
- Sources of funds
In certain circumstances, you will need to provide additional documentation. For example, if you are married, your lender may also ask to see your spouse’s documents as well. For those who are self-employed, more income documentation may be required.
After approval, it’s time to lock in your refinance rate. This is the interest rate you will pay on your loan. Once you have been approved and have found a rate you are happy with, you will sign a contract with the lender. This contract locks in your refinance rate for a certain period of time, typically 30 to 60 days. The period of time will depend on factors such as your location, loan type, and lender.
Locking in your interest rate prevents it from being changed before closing. Additionally, you may be able to float your rate. This means that if rates go up, you can lock in the lower rate. However, there is a risk with not locking in your rate as it may also increase.
When you submit your application, the underwriting process begins. During this process, the lender will verify your financial information and the accuracy of the information you provided. Details such as when you bought the property, how much you paid for it, and your current mortgage balance will all be verified.
After you have submitted your application and supporting documents, the lender will order an appraisal of your home. Then, an appraiser will come to your home and determine its value.
This information is then used by the lender to determine how much they are willing to lend you.
When having your home appraised, it is a good idea to be present. This way, you can ask the appraiser any questions you have about the process. Making sure your home is clean and presentable and that any minor repairs have been made is also a good idea. It is also advisable to make a list of upgrades that you have made since buying your home.
Once the appraisal is complete, the lender will give you a loan estimate, which outlines the terms of the loan, the fees, and the interest rate. If you’re happy with the loan estimate, you’ll then move on to the next step in the refinance process: signing loan documents.
After underwriting and the home appraisal are complete, it is time for the closing part of the refinance process. The closing is when the loan is finalized and you will sign the loan documents. A few days before closing, your lender will send you a closing disclosure which will include the final numbers on your loan.
Closing during the refinance process often is a much shorter process than buying a home. During the closing, the people on the loan and title and the representative from the lender or title company will be present. You’ll have an opportunity to ask any questions you may have about the loan documents before you sign them.
Once you have signed all of the loan documents, the transaction is complete and you will begin making payments on your new refinance mortgage loan. Or, if you are doing a cash-out refinance, you will receive your funds.
Closing with Galaxy Title & Escrow
Refinancing your home is a big decision. You want to be sure that you are working with a company that you can trust to handle your refinance transaction quickly and efficiently.
At Galaxy Title & Escrow, we have the experience and knowledge to handle your refinance transaction from start to finish. We will work with you and your lender to make sure that all of the necessary paperwork is completed and that your refinance loan closes on time. Contact us today to learn more about our closing services.