Refinances typically require 30-45 days from start to finish.
Of course, several variables can affect that timetable including how busy lenders are with loans and refinances, your particular property, and if you have complicated finances.
During the current pandemic, with rates reaching historic lows, refinances are taking a bit longer because there are so many of them.Click here for today's refinance rates.
12 Steps to Refinance a Mortgage
From finding out your home’s value to signing the closing papers, you can expect to experience these 12 steps.
Some of these steps require you to take action, others detail how the processing works. By keeping up to speed on the refinancing processing and doing your part quickly and efficiently, your refinance should go faster.
1. Determine the value of your home. This can be quite a guessing game. The best indication may be similar homes on your street that have sold. Just make sure that the homes are similarly updated, and have the same square footage, lot size and amenities. Look at apps like Redfin, which shows you recent nearby sales. You can even take a look inside to see if the home was in better or worse condition than yours.
You can also look on your county assessor’s website, but these values tend to be lower than what your home might actually appraise for. You may need your parcel number to look up your home, but many property assessors’ websites allow you to look up your property by the address.
Other sites may have a value for your address, but those may not be accurate. Your best bet will be your appraisal, which your lender will order. Speaking of the lender, it may have a way to estimate your home’s value for you, so don’t spend too much time trying to appraise your own home. Do you have enough equity to refinance? Values may have gone up or down since you bought your home. If they’ve increased, no problem, but if they’ve decreased, you might not have enough equity.
2. Consider different loan types and examine interest rates. What is your goal for refinancing your mortgage? Do you want a lower rate, more time to pay, or cash for renovations, tuition, or another urgent need? Explore several lenders that can fulfill your goal.
When you check interest rates with these lenders, make sure you do that all on the same day. Otherwise, you get invalid comparisons. Interest rates change daily.
3. Choose the right lender. Read customer reviews and third-party reviews of lenders that interest you. Ask family, friends, and co-workers with recent mortgage experience about the lenders they engaged. When you’ve narrowed your choices to three or less, compare all their rates, terms, and requirements.
Ask all your finalists how long they typically take to complete a refinance. Select the one that’s most appropriate for your situation.
4. Explore fees and other costs. Ask your lender what fees they charge and what that amount will be for you. They probably won’t have exact amounts yet, but they can estimate. Potential costs include an origination fee, recording fees, taxes, credit report costs, and title fees.
5. Gather the required documents. These usually include one month of pay stubs, two years of tax returns and W-2s, the past two months of bank statements, a copy of your homeowner’s insurance policy, and a recent mortgage statement.
6. Complete a loan application. Most of these should be online, but in rare cases may need to be mailed or done by phone. Keep your needed paperwork handy so you can refer to it. Questions on the application might include details about your employment, recurring debts, and what kind of loan you want. Lenders can never ask you personal questions about gender, potential pregnancies, etc.
With online and mail-in apps, check them for accuracy after completed. Errors can slow the refinancing process down.
7. Wait for your loan estimate. According to the Consumer Financial Protection Bureau you must receive a loan estimate within three business days of filling out the application. This three-page document lists your total costs, the new monthly payment, money needed at closing, and more details.
8. Loan processing begins. Now you wait while the lender and underwriter get busy doing their work.
9. A home appraisal is arranged. The lender sets this up with you, so it may happen at any time while your loan processes. In some cases, technology has made an appraisal unnecessary and if that’s true for you, Fannie Mae or Freddie Mac will get you an appraisal waiver.
10. Make sure you’re available. While the underwriter is deciding whether you’re risk-worthy or not, he or she may need additional documentation or have questions for you. The quicker you comply, the speedier the process, and the sooner you’ll have your refinance.
11. Lock in your mortgage rate. Actually, this can be done at any time during the process, but if you want to gamble on the rates going down, you can’t wait much longer. Your rate needs to be locked in at least six days before closing.
12. Close on your new loan. Sign all the documents, pay the fees (around 2 percent of the loan amount), and now you officially have a refinance on your home.
You can accelerate the process by getting by making sure you qualify for this refinance.Start your refinance here.
3 Ways to Prepare for the Refinancing Process
Of the three ways to prepare listed here, only home equity was mentioned above in the “12 Steps to Refinance a Mortgage.” You should check on all of these — credit score, home equity, and debt-to-income ratio — before starting the refinancing process.
1. Credit score. Check with one of the credit bureaus — Transunion, Experian, or Equifax — to get your unique credit score. A score of 620 is usually needed to refinance a conventional loan. Read more about credit scores here. If you have what’s considered a good score, leave it alone. Don’t miss any payments or take on new debts.
2. Home equity. Lenders won’t usually loan more than 80-90 percent of the equity you have in your home. That means you need close to 20 percent equity to apply for a refinance. However, if you have less than 10 percent, but you have a good credit score, you may still be able to refinance. If you’re not sure how much equity you have in your home, contact your current lender and ask. They should send you a mortgage statement.
3. Debt-to-income (DTI) ratio. Your DTI is the amount of your monthly income that goes to your bills. Lenders prefer working with borrowers who have a 50 percent or lower DTI. Anything more than the 50 percent means you have too much debt. Here’s how to calculate your personal DTI.
When your credit score, home equity, and DTI meet the refinancing requirements, you can start collecting the documents you will need to give to the lender.
Assemble Your Refinance Documents Ahead of Time
Expedite your refinance by gathering your documentation early. You may need to request some of these documents from other sources so bear in mind the time that will take. That’s why this should be one of the early steps you take.
Here are the documents you’ll likely need:
- Proof of income for both primary and secondary earners (recent pay stubs covering the past month, tax returns from the past two years, and forms like 1099s and W-2s)
- Name and address of all employers from the past two years
- A written explanation if there’s a gap in employment in the past two years
- Former addresses if you’ve moved in the past two years Proof of assets (two recent statements from savings, checking, investments or retirement accounts)
- List of all debts (this should include current mortgage, credit cards, student loans, auto loans, and home equity loans)
- Proof of insurance (copies of your homeowner’s policy and your title insurance policy)
Besides gathering the paperwork you’ll need, you need to get ready for your home appraisal, too.Click here for today's refinance rates.
Prepare for Your Appraisal Ahead of Time
When it comes to a refinance, everything depends on your appraisal. That is, if one is required. Many refinance candidates won’t need an appraisal at all.
For instance, FHA, VA, and USDA streamline refinance programs don’t require an appraisal. Many conventional loan applicants receive an appraisal waiver because the home is determined by computer algorithms as a “good risk.” These applicants will save hundreds of dollars and a week of processing time in some cases.
Those who do need an appraisal will receive a 20-30 page report that shows your home value, quoted by a professional, that a buyer would reasonably pay for your property if you sold it today. You want your property to look sales-worthy for the appraiser.
Here are a couple of ways to make sure your property is ready for an appraiser:
Spiff up the interior and exterior with a new coat of paint. Painting doesn’t cost much, gives you immediate results, and is a real game-changer. Clear the clutter. Finish any renovations that add value to your home.
Get your yard in shape to garner curb appeal. Mow the lawn, plant some color, and trim overgrown shrubs.
Track any improvements you’ve made with receipts, bills, and permits.
You can share the comparables you found with the appraiser if you want, but don’t expect him to use them. He has special training and certification to do his job.
The time the appraiser spends on your property averages between 30-45 minutes. His final report may take from less than a week to two weeks depending on his workload. The cost runs from $300-$800.Ready to refinance? Start here.
Should You Refinance Right Now?
To help the economy during the current pandemic, the Federal Reserve dropped interest rates a couple of times in March 2020. Because rates are at historic lows right now, you might want to see what kind of positive changes you can make to your mortgage with a refinance. If you can save money, increase your equity and/or pay your mortgage off faster, then you should apply for a refinance.
If you currently have an adjustable rate mortgage (ARM), converting to a fixed rate mortgage makes good sense.
But the value of a refinance depends on your individual financial situation.
Some Reasons You May Choose Not To Refinance Now
Will you live in this home long enough to benefit from a lower rate and lower payment? It may take between two years to as long as five years to recoup your costs, so if you don’t plan to stay that long, you probably shouldn’t refinance.
A good way to figure this out is to calculate your break-even point. First, total the closing costs you’ll need to pay and let’s say that’s $3,000. Your new payment will save you $200 each month. Divide $3000 by $200 and that equals 15. That means in 15 months you’ll reach your break-even point.
If you haven’t been in your current home very long, you probably don’t have enough equity built up to refinance. Also, if you already have a low interest rate of 4 percent or less, a refinance won’t make sense.
4 Tips to Speed Up Your Refinance
Reviewing the variables affecting how long does it take to refinance a home, you have the power to speed up your refinance process by doing the following:
1. Choose a lender that works quickly. Find this out by asking ahead of time how long it typically takes them to close a refinance.
2. Answer questions and comply with requests immediately. When asked for more documentation or presented with questions, reply to your lender within 24 hours.
3. Use a refinance checklist to keep track of your loan. You can download one here.
4. Review the Closing Disclosure with a fine-tooth comb. You’ll receive this document three days before your scheduled closing. It is the final version of your Loan Estimate. Compare them side-by-side to see what has changed. Even misspellings and typos must be corrected. If everything is as it should be, sign and return it to your lender.
If the APR rate for your loan has changed on the disclosure, a prepayment penalty (rare) added, or you’ve requested a different loan product, a new Closing Disclosure must be issued and you’re subject to another three-day waiting period.
Getting a refinance in a timely manner depends on you doing what’s required quickly and efficiently. Then you’ve done everything you can and it’s up to your lender.Click here for today's refinance rates.