Any person that owns a home with an existing mortgage is eligible to refinance it, which basically means getting a brand new mortgage loan. Your ability to refinance depends on several factors, including how much equity you have in your home.
How Home Refinancing Works
When you refinance, you’re pretty much trading your current mortgage for a new one, usually with a new lender and interest rate. Refinancing is a way to save money and pay off your mortgage early.
It makes sense to refinance if you can lower your interest rate and pay off your mortgage more quickly. In addition, you have to re-qualify for a mortgage, which involves a credit check and most of the time a new appraisal is required. (but case by case underwriting may waive the property inspection aka appraisal).
Applying for a Mortgage Refinance
The first and foremost step to take in mortgage refinancing is to apply for it. You will have different options when you decide to refinance, and your lender will ask for the same information you gave them when you first bought your home.
Aside from that, they may ask for other documents such as:
- Two most recent bank statements
- Two most recent pay stubs
- Two most recent W-2s
If you’re married, your lender will also need your spouse’s documents. If you decide to work with a new lender, they will pay off the current loan, ending your connection with your current mortgage lender/servicer.
Locking In Your Interest Rate
Once you get approved for a loan, your lender may give you the option to lock your interest rate to ensure it doesn’t change before your loan closes. You can lock in your mortgage rate for anywhere from 15 to 60 days. The length of the lock depends on factors like your location, loan type, lender, etc. If your loan doesn’t close before this period ends, you may need to extend the rate lock, which can cost you money.
Another option you may be given is to float your rate, which means not locking your interest rate as you proceed to get your loan processed and approved. You may get a lower rate, but there’s also the risk of getting a higher one, which could disqualify you from an approval!
Once your application is submitted, your lender will begin the underwriting process, which involves verifying your documents. Aside from personal information, other details may include when precisely the home was bought and an appraisal for the value of your home. The appraisal is critical because it’s what dictates your options moving forward.
When you decide to refinance your home, an appraiser may visit your property to get an estimate of the home’s worth, so make sure it looks its best before the appraiser arrives.
If the appraised value is higher than the amount you want to refinance, you can complete the underwriting process, or amend your application to increase your mortgage loan amount. But if the appraised value is lower than the amount for which you are looking to refinance, you can either cancel your application or write a check to cover the difference between the appraised value and the current mortgage loan balance payoff amount.
Closing On Your New Loan
Once everything has been done, the only thing left to do is to close your new mortgage loan. Your lender will send a Closing Disclosure where you’ll see all the final loan details. You’ll attend the closing, usually with an escrow agent, an attorney representing the title insurance company or a closing agent from the title insurance agency. At closing, you’ll review the details of the loan and sign your loan documents. If your lender owes you money for closing costs or a cash-out refinance, you’ll receive the funds after closing, subject to any applicable right of rescission.
If you’re in a bit of a tight financial situation, refinancing your current mortgage loan may be a great solution to solve your troubles.
MMS Mortgage Services offers programs for a mortgage refinance in Michigan. Every homeowner must have options for paying their mortgage loan with ease, and our financial experts are there to help you before and after the closing. Contact us today at (248) 788-0800 or toll free at (800) 945-4506 then press 2, to learn more!
Do you know how much home you can afford?
Most people don’t... Find out in 10 minutes.Get Pre-Approved Today