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The Home Mortgage Refinance Process
October 25, 2020

When rates are low, it can seem like the ideal time to refinance your mortgage. After all, who doesnt like a lower interest rate? There are lots of good reasons to refinance your mortgage, such as adding on or trying to streamline your expenses, but whats really involved in the process?

Mortgage Refinancing: The Basics

Perhaps the best news any homeowner can get when it comes to a refi is that its not likely to be nearly as difficult as getting the original loan was. Breathe a big sigh of relief if you need to; this is the time for it.

For many homeowners, refinancing happens for a few specific reasons: reducing mortgage interest, dropping mortgage insurance, or cashing out for a remodeling expense. When rates are low and values are high, a refinance can provide a double whammy financially. Dropping any mortgage insurance youre currently on the hook for can make a big dent in your house payment, especially if waiting for it to fall off naturally would take several more years. And, of course, a lower interest rate also means youre paying less money towards interest over time. Combine the two and it can mean big savings on a home you plan to hold over the longer term. Remodeling is a valid and effective way of adding value, as well, which has a whole lot of other benefits that come with it. In short, there are tons of ways a refi can be helpful to your financial welfare.

The Refinance Process

Much like when you got your initial loan, your mortgage banker or broker will examine your financial history and your longer term prospects, which includes your work history, to ensure youre financially stable. Your debt to income ratio will be reexamined as well. Although these are closely scrutinized, many banks will grant a bit more wiggle room than they did for initial mortgages, especially for homeowners who have a lot of equity already established.

Once approved for your loan, youll choose when to lock in your rate. Because interest rates can vary from day to day, its important to pay close attention to both the current rate being offered and your lenders advice in the matter. If they have noticed rates are going up, locking right away makes a lot of sense, but if youre the gambling sort and rates are trending down, you may want to float your rate a few days to see if you can do any better. Remember, though, this is a bet that youre taking that the rate will drop, and it wont always pay off.

Documents Youll Need

Just like with the initial mortgage, youll need to prove you are who you say you are and that you have the income you claim, among other things. Your banker will almost certainly ask for the following types of paperwork:

  • Proof of income.Tax statements and tax stubs are big favorites for proof of income. If you own a small business, you may also be asked for a profit and loss statement, so get to work on preparing that now.
  • Credit score.Your lender will run your credit (and the credit of any co-applicants) in order to determine if you remain credit-worthy. Dont worry, they cant revoke your current mortgage if things have gotten a little rocky in that department; they just wont write you a new loan. Pulling a credit report can also inform your lender about your debts.
  • Asset information.If you have a retirement account like a 401(k), stocks, bonds, or even a checking or savings account, your lender will want to know about it. These accounts, plus the equity you have in your home and other assets, figure into the equation when lenders are trying to assess your risk of default. They can also serve as sources of collateral, should you need it.
  • Other legal paperwork.Divorce decrees and support payment documentation are helpful for your lender to determine what liabilities you have, if any, in relation to those former legal relationships. If you receive support, it can sometimes be figured into your income calculation.

Once your lender has reviewed your paperwork and determined theyre willing to refinance your loan, theyll order an appraisal of your home. Typically, an inspection wont be needed, unlike with a purchase. In many cases, a drive-by appraisal will be adequate, especially if its very clear at a glance that youve maintained the property.

Closing the Loan

With all your paperwork in hand and your appraisal completed, your lender will be ready to send you and your loan to closing. Since theres not a seller involved, you will be going to closing at a time thats convenient for you, and itll be a very quick process. Make sure to double-check the terms of the loan to ensure youre agreeing to the mortgage you believed you were signing up for. If you have any questions, your lender will be more than happy to clarify, but ask them before you sign the dotted line.

Following your closing day, you have a special period to change your mind and revoke the loan entirely. Thanks to your right of rescission, you can cancel the loan with no penalties and no modification to your previous mortgage within three days of closing. So, if you wake up the next day with cold feet, its not too late to turn back time!

Need Help Finding a Lender?

If youre thinking about refinancing and need help finding the perfect lender, or looking for a second or third quote on your refi, it can be hard to know who to trust. Fortunately, your HomeKeepr community has your back where you can search for lenders who can get the job done.


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