A step by step guide to Refinancing your Home Mortgage

by Advisor Voices
Mortgage Refinance,

Before you begin, it’s important to consider why you want to refinance your home loan in the first place. That guides the mortgage refinance process from the very beginning. Here are steps to help you navigate the refinance process.

Step 1. Determine your goal. Consider whether to lengthen or shorten your mortgage.
When you refinance you mortgage, you start the 30-year clock ticking again. If you don’t want to do that, consider a 10-year, 15-year or 20-year mortgage. Reducing the length of your mortgage can be an appealing option for homeowners seeking to pay off their house before retirement.

» MORE Calculate your refinance savings

Step 2. Know your Credit Score.
Your credit score is perhaps the largest factor that will determine what rate you get on your new loan. Before you apply for refinancing, get a copy of your credit reports and make sure there are no errors.

Step 3. Know your home’s value.
Your house will have to undergo an appraisal for the lender to know its worth. That number will help determine how much you can borrow. Check comparable sale prices (not just listing prices) in your neighborhood to see if your house is worth as much as you think it is.

Step 3. Shop for your best mortgage rate.
Get refinance quotes from at least three mortgage lenders or brokers. You might start with your bank, but also consult an independent mortgage broker because one may have programs and deals the other doesn’t. Online quotes give an idea of the range of rates available.

» MORE Find the best refinance rates

Tip: The numbers you want to compare are interest rate, fees and points. Fees will vary by lender. Rates will, too, but rates also will vary based on whether you want to pay points. You also will have additional fees that should be the same no matter which lender you choose, including state or local taxes and title costs.

Step 4. Know what it will cost to close.
The fees charged by the bank aren’t the only costs you’ll need to pay to refinance. You’ll also need to pay taxes, legal fees, title costs and perhaps put additional money in escrow for taxes and insurance.

» MORE Estimate your Closing Costs

Tip: Know that “no-cost” refinance deals don’t exist.
A refinancing that has no upfront closing costs from the lender has the costs built into the interest rate or adds them to the principal balance. If you plan to keep the loan for a long time, you might be better off paying fees.

Step 5. Decide whether to pay more now in exchange for a lower rate.
If you pay “points” on a mortgage – a point is a fee equal to 1 percent of the loan amount – you can get a lower rate. If you pay in cash upfront, not only your mortgage payment will be lower, but more of your payment goes to principal.

Step 6. Get all your documents together.
Make sure you have your basic financial and loan information on hand. Whether you’re scanning, faxing or uploading with your phone, you’ll still need to provide proof of employment, income and assets. That could mean pay stubs, tax returns, bank statements and other documents, which places a premium on organization.

Step 7. Scrutinize the documents before closing.
Ask to see the closing documents at least 24 hours before you’re expected to sign. That gives you time to ask questions and get any errors corrected.

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