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What Happens When You Refinance Your Home Loan?

October 16, 2024

Ready to refinance your mortgage? Here’s what you need to know about the process.

This could be the right time for you to refinance your home loan. You’ve had the same mortgage for several years now, and you’ve built up home equity. What will happen when you refinance? How do you get this process started, and what does it include? Here’s what you need to know about refinancing your home loan.

What Is a Home Refi?

Refinancing your home essentially means trading in one mortgage for another. Most homeowners refinance to take advantage of a change in interest rates to lower their monthly payments, shorten their mortgage term, or take some cash out of their home for other purposes. You may refinance with the same lender or change lenders.

There are many reasons you might want to refinance your home. Regardless of the reason, the steps to refinancing are the same. Once you’ve decided a refi is right for you, here’s what you can expect.

What Does It Cost to Refinance?

Remember when you bought your house initially, you scraped together as much cash as you could for the down payment so your monthly mortgage payment would be lower? When you refinance, the equity in your home acts as the down payment.

There are other costs associated with refinancing your home loan. You will have to pay for an appraisal, title insurance, application fee, loan origination fees, and recording fees. If you have less than 20% equity in your home, you will have to pay private mortgage insurance (PMI). You can expect to pay between 2% and 5% of the total loan amount in closing costs. Depending on the refinance loan you choose, you may be able to roll some closing costs into your mortgage and pay them off over time.

5 Steps to Refinancing Your Home Loan

If refinancing your home feels vaguely familiar, that is because it is the same as when you bought your home initially. Even if you have only had your current mortgage a short time, you will still need to go through these steps to complete a refi:

  1. Apply for a Mortgage Refinance – Your financial institution can guide you to the right mortgage for your refinancing goals. They will collect your financial and property documentation, including pay stubs, W-2s, bank statements, and insurance information. You will need to provide income and credit information for anyone you want to put on the mortgage.
  2. Lock in the Best Interest Rate – Because rates fluctuate frequently, you may want to lock in the rate the day you submit your application. Locking it will hold that rate, even if rates change before closing. If you don’t lock in the rate, it might be higher on the day you close the loan. The rate lock can hold for anywhere between 30 and 60 days, during which time you’ll want to complete your closing.
  3. Prepare for a Home Appraisal – Your lender will order an objective appraisal of your home’s fair market value. You will be responsible for the cost of the appraisal. The appraisal will consider things like features of your property, details about local comparable properties, and market price trends. It is a good idea to prepare for the appraisal by finishing any home improvement projects you started, doing minor repairs, and making a list of any upgrades you’ve made since you bought the property. The appraised value of your home affects the terms of your refi.
  4. Wait for the Underwriting to Be Completed (add in information about upfront amounts) – Your financial institution will review the financial and property information they’ve collected to determine how much they can lend you and on what terms. Any upfront payments you will need to pay at closing will be determined during the underwriting part of the refinance process, and a closing disclosure listing those costs will be provided to you.
  5. Close on Your New Mortgage Loan – Closing is the big day, but this time, all your possessions aren’t in a moving truck at the curb, so there’s no pressure. You will sign your disclosure and other legal paperwork during closing and pay your closing costs. If you are due a cash-out, you will receive that money in three business days after the closing.

 

The process of refinancing your home usually takes between 45 and 60 days to complete. If you would like more information about refinancing or would like to start the process, call us at (877) 773-6605 or email us at enb@epnb.com