How To: Refinance A Home Mortgage Loan
With recession biting hard, taking away job opportunities and reducing income, many people chose to take a home mortgage loan to refinance their mortgage. With interest rates that were a record low, refinancing was the route many chose to take. More than half of all applications for a home mortgage loan from mid 2009 to the early part of 2011 were for refinancing. The consideration most people make when taking a home loan is the interest rate. There are other considerations to be made though when going through the steps to refinance a mortgage, like big bank vs community lender.
Starting the process
The first step is talking to a mortgage loan officer and discussing your goals for refinancing your home mortgage loan. They will get all the information required from you that is needed for the application to be made and for you to get pre-qualified.
The loan officer will then discuss the options with you and advice you on particular loan programs. You will then choose your option and and put in a loan submission under the program you have chosen. You will be given what is known as a Good Faith Estimate. It carries details on the estimated interest rates and the costs of the loan.
Should you decide to go ahead with the loan application, an appraisal will need to be done. Lenders carry out appraisals* in order to determine the market value of your house. With most lenders, the appraisal remains valid for between 90 and 120 days.
Different loan programs for a home mortgage loan to refinance have different requirements. Depending on which one you choose, you will be required to submit documents such as pay slips, tax returns forms, statements on your current mortgage and related documents that you may be asked for.
What will happen next is that your loan officer will send the required State Disclosures for you to go through. You will need to sign these documents and if there are any co-borrowers, they will be required to sign as well. These disclosures are issued to give you information. They do not mean that you must go through with the loan.
With all the papers done and signed, your loan officer will submit your application to the lender with the supporting documents attached. The lender's underwriter then goes over your application to verify if all the criteria for the kind of loan you applied for has been satisfied. If everything is in order, loan approval is issued.
Once your application is approved, the title company will issue a final statement statement. Timelines for closing will be laid out. You will be met by a closing agent at the set time and date to go over and complete the paperwork. This could be done at your home, or at the banl or title company. You and co-borrowers, if there are any, will review the papers and sign them if you are satisfied with them. After the closing documents are signed, you will have a three-day window during which you can decide to back out. The loan will usually be processed on the fourth day after the closing papers are signed.
What not to do
With interest rates at all time low, you may be in a rush to close a refinancing deal but acting in a rush could lead you to making some costly mistakes. A common one is overstating the value of the home in order to get larger loans. An appraisal will be done by the lender and this could reflect badly on your credit worthiness.
Another common mistake is playing a waiting game and not wanting to lock in at the current low rates with the hope that they will fall even further. The US real estate is showing strong signs of recovery in most states and rates could shoot up rather than down.
Making interest rates the only or main consideration is another pitfall to avoid. Factor in everything including closing costs, lender fees and also lender reputation. Take the time to do comparison and crunch the numbers to get a clear idea of the big picture.
Something else that should not be overlooked is the option of the short term refinance home mortgage loan. The 30-year mortgage is the most common one but consider the 15 or 20 year mortgage if you can handle it. A shorter duration loan means less interest payable.
It is also important to do your homework on what is required by lenders. These days, a lot more is required in terms of documents. Recent pay slips, bank statements, W-2s from the last two years and for the self-employed, tax returns from the last two years that evidence steady income will be required.
Whether it is for a first home or to refinance, a home mortgage loan is major undertaking. Do it with a lot of consideration and after researching your options thoroughly.
*For some home mortgage loan refinancing, appraisals aren't needed. Ask your mortgage bank about this to see if your loan would qualify. It could save you a couple hundred dollars.