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REFINANCE GUIDE
LEARN HOW REFINANCING CAN HELP YOU SAVE MONEY.
A Mortgage Refinance involves obtaining a new mortgage with different terms to replace your existing mortgage. This new loan pays off your current mortgage balance, allowing you to secure better terms, such as a lower interest rate, a different loan duration, or a change in loan type. Refinancing can help you reduce monthly payments, shorten your loan term, or access equity in your home.
Reasons to Refinance
Exploring Your Refinance Options
Choose the Right Product
Appraisals and Underwriting
Closing Your Refinance
Reasons to Refinance
Take Cash out
Refinancing your mortgage is a fantastic way to put your home’s equity to work. With a cash-out refinance, you refinance for a larger loan amount than you owe and keep the difference. You won’t have to pay taxes on the money you receive. Many homeowners use the cash to pay down high-interest credit card and student loan debt, fund home improvements, education, or other needs. A cash-out refinance can be an excellent option for consolidating or paying off debt because mortgage interest rates are often lower than those on other obligations. Additionally, mortgage interest is frequently tax-deductible, whereas interest on other obligations is not.Get A Lower Payment
With a lower mortgage payment, you’ll have more money to spend on other things. You can reduce your payment by refinancing in several ways, such as securing a lower rate, eliminating mortgage insurance, or changing the mortgage term.Shorten Your Mortgage Term
Shortening the term of your mortgage is an excellent method to save on interest. A shorter term usually results in a lower interest rate. Over time, this lower rate and fewer years of payments can lead to significant interest savings.We’re ready to guide you step-by-step through the entire mortgage refinance process! By the end of this tutorial, you’ll know exactly what actions to take to refinance your mortgage and whether a refinance is right for you.
Required Docs & Disclosures
To verify the information you provided on your application, the lender will need the following documents:• Signed Disclosures
• Complete Federal Income Tax Returns
• Two to five recent pay stubs
• Mortgage Statement Copies
• Homeowners Association information
• Name, agent, and phone number for homeowner’s insurance
• A copy of your ID/Driver’s License
Exploring Your Refinance Options
List Your Goals
When refinancing your mortgage, clearly communicate your goals to your lender. Whether you want to lower your payment, shorten your term, or cash out the equity you’ve built in your house, specifying your objectives will help your loan officer determine the best refinancing options for you.Learn About Your Options
If you’ve decided that refinancing is right for you, ask your lender to go over your options. Here are some common reasons to refinance:1) Reduced Monthly Mortgage Payment
A lower interest rate results in a reduced monthly payment, saving you money over the life of the loan.
2)Pay Off Your Mortgage Faster
Refinancing to a shorter term, such as from 30 to 15 years, helps you save on interest in the long run.
3)Get Out of Your ARM
Refinancing from an Adjustable-Rate Mortgage (ARM) to a fixed-rate loan can ensure consistent payments once the fixed period expires.
4) Debt Consolidation / Cash Out
A Cash-Out Refinance lets you access your home’s equity to pay off high-interest debt or cover large expenses like college tuition.
5) Eliminate Mortgage Insurance
Refinancing to a conventional loan with no mortgage insurance can save you money if your equity reaches 20% of the home’s value.
Complete Your Mortgage Application
If you decide to proceed with refinancing, the next step is to complete your mortgage application. This involves submitting your financial information to the lender to determine the terms of your new loan. You can complete your application in person or online.Required Information for a Comprehensive Loan Application:
• Name
• Income
• Social Security Number (to obtain a credit report)
• Property address
• An estimate of the property value
• Amount of the Mortgage Loan
If you have any questions, your loan officer is available to assist you in completing your application. They will also review your application to ensure all information is accurate and valid, and then process it for approval.
Now that you’ve learned about the different benefits of refinancing, you’re ready to determine if it’s the best option for you.
Choose the Right Product
Every refinance loan has its own set of advantages.
We’ll explain the distinctions between the options so you can pick the best loan for your needs.
The majority of refinance products fall into one of two categories:
• Fixed-Rate Mortgage
• Adjustable-Rate Mortgage (ARM)
The fundamental difference between the two is that a fixed-rate loan maintains a consistent payment throughout the loan’s duration, while an ARM has a fixed rate for a set period and then adjusts afterward.
TTwo key factors to consider when deciding which option to pursue:
1)How long you plan on living in the home.
2)The current interest rates.
If you intend to stay in your home for a long time, you might consider refinancing to a fixed-rate mortgage, which provides regular payments over the loan’s lifetime and shields you from rising interest rates. If you plan to sell your house within the next seven years, an ARM may be more advantageous due to its lower interest rate and payment. The difference in monthly payments between a fixed-rate loan and an ARM can vary depending on current interest rates. Work with your loan officer to determine which is best for you.
Here are all the refinance options:
1) Rate and Term
This refinance changes the interest rate and/or term of your mortgage. A drop in interest rates often triggers this refinance, allowing borrowers to lower their monthly payments and save money over the life of their loan.
2) Cash-Out Refinance
A cash-out refinance allows homeowners to use the equity they’ve built in their homes for other purposes. This option is popular for those needing extra cash for significant expenses or projects. The new loan amount will include the old loan balance, the cash-out amount, and settlement costs.
3) FHA Streamline
Current FHA homeowners can refinance without an appraisal and with minimal documentation. To qualify, you must have an FHA-insured mortgage, be current on payments, and the lender must determine that the refinance provides a net tangible benefit.
Review the Loan Estimate
The Loan Estimate is a legally required document for your protection. Within three business days of submitting a complete mortgage loan application, your lender will provide you with a Loan Estimate. This document contains crucial information about your loan, such as the estimated interest rate, monthly payment amount, and total closing costs. Check out the CFPB’s Loan Estimate Explainer to learn more about the Loan Estimate Form and key terminology. Remember, the Loan Estimate is just that: an estimate. A Closing Disclosure will be provided to you after the transaction, detailing the final charges.Appraisals and Underwriting
Appraisal
Your lender must order a home appraisal to determine the estimated market value of your house before you can be approved for a refinance.The appraised value is based on numerous criteria, including the number and size of rooms, comparable homes recently sold in the neighborhood, and features or traits that may affect your home’s value. Your lender will use the appraised value to determine the loan amount and terms for your refinance.
Underwriting
After you submit your complete mortgage application and all relevant documentation, your loan officer will send your papers to a processor.The processor will review and prepare your loan file for underwriting.
An underwriter will then evaluate your application and request any additional documentation needed to proceed with your loan and obtain the necessary approvals for closing.
Conditional Approval
Conditional approval indicates that the underwriter has authorized your loan on the condition that you meet certain underwriting criteria before scheduling a closing.You won’t receive a Clear-to-Close (CTC) until all of the underwriter’s requirements are met.
To prevent the rate lock from expiring, be ready to supply all necessary documents promptly.
If you have any doubts about your loan’s conditional approval or status, contact your loan officer for clarification.
Closing Your Refinance
Review & Sign the Closing Disclosure
Your lender will send you the Closing Disclosure, which is similar to the Loan Estimate and required by law for your protection.This document will be delivered at least three business days before your closing date. It contains critical information about the loan program you selected and helps you understand all transaction costs and the closing date.
If any information on the Closing Disclosure is incorrect or the figures aren’t what was agreed upon, ask your lender for an explanation.
Closing Your Loan
Once all your loan approval contingencies have been met, your lender will contact you to set a closing date. At the closing, you will sign the final documents and pay the closing charges.Documents Requiring Your Signature Before Closing
Promissory Note
TThis signifies that you accept your lender’s loan terms and agree to repay the loan amount plus interest. It specifies payment due dates and the address for sending payments. It also describes the consequences of late payments.Mortgage, Security Instrument, or Deed of Trust
This document serves as security for the loan. By signing it, you grant your lender the right to foreclose on your home if you do not make timely payments. The lien will be removed once the debt is paid in full.nitial Escrow Information
The Initial Escrow Disclosure Statement details the costs you’ll be paying into escrow each month, including taxes and insurance.Affidavits and Declarations
These legally binding documents explain your financial obligations and legal rights as a homeowner.Right to Cancel Form
You have three business days after your refinance closes to cancel or rescind the loan. This form explains when and how to cancel the loan and the potential implications.Funding Period
After signing all final closing documents, your lender’s closing department will review and approve the funding of your loan.It may take up to three business days for your loan to be funded.