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If you are looking to lower the interest rate on your mortgage when the rates are relatively low, there are a number of factors that you need to consider before going through the process, especially understanding how long it can take.
The mortgage refinance approval process can sometimes take as long as getting a new mortgage. It can take weeks to over a month to process your documents and for insurers to verify the numbers.
Here’s an overview of what the refinancing process entails, and some ways you can help make it go as smoothly as possible.
How long does a refinance take?
Refinances can take 45 to 60 days depending on several factors, including the type of loan. For example, the timing may be affected by whether it is a government guaranteed mortgage, such as one from the Federal Housing Administration (FHA) or the Office of Veterans Affairs (VA), which may take more time than a conventional loan. It can also be more complicated if you have a Home Equity Loan or Line of Credit (HELOC) with a conventional mortgage and need to incorporate them into a new loan.
During the Covid-19 pandemic, refinances often took longer, mainly due to the rush to get new mortgages or refinances during a period of low interest rates.
Apply for refinancing
Refinancing your existing mortgage is similar to the process of obtaining a mortgage for the purchase of a new home.
First, you’ll want to research the best interest rate and the lowest closing costs. Sometimes the lender who originally gave you the mortgage will give you a better refinance deal to keep your business. But that’s not always the case, so it’s important to shop around.
Compare the offers of different lenders before making your final decision or filling out an application which will result in a credit check. If you know some basic details like what’s left on your existing mortgage, your income, and your credit score, the lender can give you a rough estimate of your rate for refinancing the mortgage without pulling on your credit history.
Most lenders now make it easy to apply online and conduct much of the application process through a portal. But keep in mind that during the official application process, the lender will require documented proof, like your income and your mortgage balance.
Related: Mortgage Refinance Calculator
4 ways to help the refinancing process
There are several ways to speed up the refinancing process:
1. Check your credit
Your credit score is one of the most important factors in determining your interest rate. If you can reduce your interest rate by one point, for example, you could save thousands of dollars over the life of your loan and make sure your monthly payments are more affordable.
Check your credit score and report to make sure everything is correct or needs improvement. Your credit report has a direct influence on your credit score, so you need to make sure there are no mistakes in it that could derail your refinancing.
Any missed or inaccurate payments could hurt your score because your payment history represents 35% of your FICO credit score, and mortgage lenders typically use this score to determine your interest rate.
If you find any errors on your credit report, dispute them immediately, and your credit score could see immediate improvement once it is cleared from your credit report. The time it takes to clear your report varies.
2. Look at your finances
Refinancing can cost you thousands of dollars in closing costs, so it’s a good idea to make sure you can handle these expenses. For example, you will likely have to pay a few hundred dollars for an appraisal, and costs such as lender sales charges and title insurance could add up to over $ 1,000.
Look for the lowest fees as well as the best interest rate to save money up front.
3. Prepare your documentation
The documents needed for refinancing are very similar to those you provided for your original mortgage. This should make it easier to prepare the documents before you apply and send them out as soon as possible once the lender requests them.
You might find the full list of documents you will need when you apply or shortly thereafter. But tax forms and paycheck stubs are usually required upfront. You may also need to provide property tax statements and employer contact information, as well as information about the Homeowners Association (HOA).
4. Prepare your home for an appraisal
You’ll want to provide the best possible estimate of your property’s value at the time of application, based on your previous appraisal, online appraisal sites, and a real estate broker appraisal, if possible.
Once you’ve applied for refinancing, you’ll need to prepare your home for appraisal, which will determine if your estimate is correct. If you delay the valuation, it will delay finalizing your underwriting and closing the refinance.
Be prepared to schedule the assessor’s visit as soon as possible. It can be helpful to provide the appraiser with a list of improvements to the home, which can affect the value.
Be sure to tidy your home inside and out, as exterior curb appeal can influence the home’s value. Make the necessary repairs so that the assessor does not notice a leaking roof or basement; broken toilets or windows; or a pockmarked driveway. Plus, clean up the mess in your yard and inside the house.
What can delay a refinance?
There are many reasons why a refinance can be delayed, including:
- Lender bottlenecks. When mortgage interest rates are low, the demand for loans and refinancing is higher. This can overwhelm the loan team. Even if you do everything right as an applicant, your loan may be delayed because the company cannot process your application quickly enough.
- Assessment issues. If the assessor’s visit is postponed for several days or weeks due to scheduling issues, it could delay the entire process. Also, if you get a quick appraisal, but the appraiser’s value is less than what you need for the loan, it could jeopardize the loan itself. You can also request another assessment.
- Delays in paperwork. It is your responsibility to keep yourself abreast of the administrative requirements of the lender. Failure to meet the deadlines could delay the subscription and, therefore, the closing. The most likely documents you’ll need to share are pay stubs from your last two paychecks, your last two tax returns, recent bank statements for the past two months, and proof of home insurance.
- Financial or credit complications. Your income level and credit history should be consistently strong throughout the refinancing process. If you have a recent drop in income; withdraw more credit in the process, lowering your score; or have issues that show up on your credit report – any of these events can cause the underwriter to wonder if they should approve you and at what rate.
- Expiration of the interest rate freeze. It’s likely that you will lock in an interest rate early in the application process, but you will need to close the loan before the lock expires. If you don’t, you’ll need to check with the lender for a possible rate foreclosure extension or a completely new rate.
- Complications with the title. If the property company finds another lien on your property other than the current mortgage, you will need to clarify it before the refinance can be completed. A common example is a HELOC, which homeowners often take to pay for renovations or other expenses. You will need to get permission from the HELOC lender before you refinance.
At the end of the day, plan ahead
Just like with a new mortgage application, it’s best to plan for a refinance weeks or months in advance to make sure everything you need is defined, from the condition of your home to the condition of your home. of your credit report. Prepare everything in advance and know what to expect so the refinancing process can go faster than taking out a mortgage to buy a home.
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