What You Need to Know About Refinance Documents and Paperwork
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If you're thinking about refinancing your home, you can probably remember all the paperwork it took to get your mortgage approved -- and you might be feeling daunted.
But the process doesn't need to be complicated. Buying your home was the hard part and refinancing is comparatively straightforward. Read on to find out what steps to take and what documents you'll need.
How Does Refinancing a House Work?
When you refinance (refi) your house, you're not simply making modifications to your existing mortgage. You're creating a brand new home loan -- and you can even do it with a different lender than before.
You'll need to provide much of the same documentation as when you got your original mortgage and follow many of the same steps.
If you're choosing to change lenders, the new lender will pay off your old mortgage for you. Then you'll be all set with your new home loan.
Reasons to refinance your home include:
Get a better interest rate
Change from an adjustable-rate mortgage (ARM) to a fixed rate, or vice versa, depending on market conditions
Change to a shorter term so you'll pay your loan off faster and save interest over the life of the loan, but your monthly payment will be higher
Change to a longer term so your monthly payments will be more affordable
Remove or add a person from the mortgage
Cost of a Mortgage Refinance
Note that a home refi will likely cost you 2% to 3% of the value of your loan, so you want to make sure it's worth it. You'll need to pay those fees out of pocket or have them added to your loan.
10 Easy Steps to Apply for Your Home Refinance
When it comes to mortgage refinance steps, the process is similar to getting your original home loan. But it will be more familiar to you this time around -- and therefore easier.
Follow these simple steps and you'll soon be on your way to enjoying a better mortgage:
Use a Mortgage Refinance Calculator to figure out your goal.
Decide if you want to stay with your current lender or shop around for a more competitive home loan.
Gather the documents you need (detailed below).
Complete your potential lender's application form: online, by phone, or in person.
The lender will run a credit check on you and you'll likely find out if you've been approved in a few business days.
Your lender will verify your documents in a process known as underwriting.
Once approved, you can choose whether you want your interest rate to be fixed or adjustable. (You may be able to lock in your new interest rate for about 15 to 60 days.)
Your home will be appraised to determine its current value and see how much equity you have.
Close on your new loan!
After closing, you usually have a three-day grace period to check everything over and change your mind if necessary.
You'll likely start making payments on your new home loan about 30 to 45 days after you apply.
Criteria to Apply
Before you apply for your mortgage refinance, you should make sure you meet the basic requirements.
The criteria to be approved may include all or some of the following:
You've held your original mortgage for the minimum period specified by your lender. You might be able to do it right away but some mortgage types require you to wait six months or longer.
You have the minimum amount of home equity required by your lender. Home equity is the difference between how much your home is worth and how much you owe on your mortgage. A common minimum for a refinance is 20%.
You have a credit score of at least 620, but some lenders may require 650 or above.
You have a debt to income (DTI) ratio no higher than 43%, and preferably under 36%. Ideally, your mortgage should account for only 28% of your household debt.
You have the funds to pay the new closing costs, or are prepared to roll the costs into your new mortgage. Remember a home refi may cost 2% to 3% of your new loan.
You have the necessary paperwork (listed below). Yes, it will take time to gather your documents up again -- but you did it once to buy your home. You can do it again!
What Paperwork You Will Need
When it comes to mortgage refinance documents, you'll definitely need to be organized. The good news is, you probably still have all your ducks in a row from your original mortgage.
You may need to include some or all of the following papers:
Work Documents
Your two most recent pay stubs
Your two most recent W-2 forms
Your two most recent tax returns
If you're self-employed, you'll need to provide proof such as a business license, an accountant letter, or liability insurance.
If you own a business, you'll need to provide the last two years of your business federal tax returns and your business financial statements.
Asset Documents
Your two most recent bank statements
Your two most recent statements to prove any investment or retirement income if you're using those accounts in order to qualify for your loan
Credit Documents
Your most recent mortgage statement
Your most recent billing statements for any other loans you might have, for example, personal loans, car loans, or student loans
Property Documents
Your homeowner's insurance policy
If you belong to a homeowner's association (HOA), you'll need to provide a name and contact information for a representative.
The Bottom Line on Mortgage Refinance Steps
You've already achieved your goal of buying a home. Now is the time you can sit back, reflect on your mortgage, and decide if refinancing might put you in an even better spot.
All you have to do is get your refinance documents in order, then follow the easy application process outlined above.
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