If you’re considering refinancing your mortgage, it’s important to understand the process and be aware of what to expect. While most homeowners are familiar with the concept of a mortgage refinance, they may not be aware of the various steps involved. The process of refinancing a mortgage typically takes between 30 and 60 days, depending on the lender’s workload and the specifics of your loan. Keep in mind that the exact timeline and details may vary depending on the lender you choose.
1. Get your finances in order and check your credit (3-6 months before applying)
Before beginning the mortgage refinance process, it’s important to prepare your finances and check your credit. This includes setting aside liquid assets in a verifiable account for at least two to three months, obtaining a copy of your credit report, and being aware of your credit scores. You may want to reduce spending on credit cards, pay off credit card balances in advance, and aim to have zero balances on credit cards before starting the refinance application. This can help you qualify for the refinance and potentially improve your credit scores. It’s recommended to begin this process at least three to six months before applying for a mortgage refinance.
It’s important to avoid applying for any new credit several months before applying for a mortgage refinance, especially for credit cards like American Express that do not have a minimum payment listed on your credit report. You should also set aside tax returns and pay stubs for the past few years to be prepared for the refinance process. Once you have your finances in order, you can start shopping for a mortgage refinance rate by contacting banks, brokers, and lenders.
2. Contact a mortgage broker or loan officer (1-2 weeks)
To continue the mortgage refinance process, you will need to speak with a mortgage broker or loan officer. You can also get a mortgage rate quote on your own or compare rates on websites. It’s important to verify the quote with a human and discuss any specific details before formally applying for the refinance. To get the best deal, you should gather multiple mortgage rate quotes from different banks and brokers and compare the loan estimates (LEs) from each company. Pay attention to both the closing costs and the interest rate (mortgage APR) being offered. Studies show that people who get two or more quotes tend to save more money.
3. Submit the loan application (10-20 minutes)
The third step in the mortgage refinance process is filling out a formal loan application, which is similar to an application for a home purchase. You will need to provide information such as your property address, contact details, employment, income, and assets, and indicate that you are refinancing rather than purchasing a home. You may be able to link your bank account and import other information to streamline the process. The application should take about 10-20 minutes to complete. After you apply, you may receive numerous mortgage offers from competing lenders. Be aware that you may be targeted with pitches like the opportunity to skip a mortgage payment, which is a common tactic and not necessarily unique to any one lender.
4. Review and sign loan disclosures, including your loan application (10 minutes to 1 hour)
The next step in the mortgage refinance process is signing a series of loan disclosures, which may include information about privacy, your credit report, insurance, and taxes. These forms allow the lender to verify the information you provided on the loan application by obtaining copies of your tax returns or ordering a credit report. You will also receive a copy of your completed Uniform Residential Loan Application (Form 1003) to review for mistakes.
Pay attention to the forms related to your specific loan terms, such as the interest rate, loan type, origination charges, closing costs, and so on. This will include a Loan Estimate (LE) that provides important information about your loan. Make sure to review and understand these forms, particularly those related to whether your mortgage rate is locked or not locked.
5. Loan processing and verification (1-3 days)
After signing the disclosures, the loan officer or broker will review your application and order a credit report. They may contact you to collect additional information or documents before submitting the loan to the lender. This could include tax returns, bank statements, pay stubs, insurance policies, and information about dependents. You may also need to verify your ownership of the property or indicate whether you want an impound account or prefer to pay property taxes and insurance yourself.
This is a time to tie up any loose ends and ensure that all necessary information has been provided. You may also be asked to pay for the home appraisal with a credit card authorization form, which is usually considered a deposit or application fee.
6. Submit loan package for underwriting review (1-2 weeks)
At this stage in the mortgage refinance process, your loan package will be formally submitted to the lender and reviewed by a loan underwriter. The underwriter will decide whether to grant a conditional approval or deny the loan. If you receive a conditional approval, you will be provided with a list of conditions that must be met before the loan is fully approved. These conditions may include requesting additional documents, such as bank statements, credit card statements, or proof of self-employment.
It’s important to submit a complete loan package upfront to avoid having to provide additional information later in the process. To ensure a smooth process, be timely in submitting requested documents and avoid arguing with the loan officer or underwriter.
7. Home appraisal (1-2 weeks)
If you’re lucky, your mortgage refinance may not require an appraisal, which can save money and time. If an appraisal is necessary, the appraiser will contact you to schedule a visit to your property. It’s important to be available and present for the appraisal, and to tidy up your home as it can affect the value. The appraiser will write a report that is provided to the lender, and you will also receive a copy. If the appraisal comes in at or above value, you should be in good shape.
However, if the appraisal is lower than expected, you may need to adjust your loan amount or accept a higher interest rate and/or closing costs. If any material changes occur during the process, you may need to re-sign disclosures and a “Changed Circumstance” form.
If you have to sign the same documents again, don’t get upset – it’s just a normal part of the process. However, you should still review the documents for accuracy and ask your loan officer or broker to clarify if needed.
8. Clear to close and loan document signing (4-5 days)
Once the appraisal is complete and the loan underwriter has all the necessary documents to close your loan, you will be “clear to close.” This means that your loan has been fully approved and you can schedule a date with an attorney or notary to sign the loan documents. You will receive a Closing Disclosure (CD) and an ALTA Settlement Statement, which provide a final overview of your loan details. Be sure to review these documents carefully to ensure that there are no changes or errors. Pay attention to the loan payoff amount, prepaid interest for your old and new lenders, closing costs, lender credit (if applicable), and cash to borrower (if applicable). After signing the documents, you will have a 3-day right of rescission, which is a period during which you can decide whether to move forward with the transaction.
9. Three-day right of rescission period (3 business days)
After you sign your loan documents, you will have a three-day period known as the right of rescission to think over the transaction. This period starts at midnight the day after you sign and lasts for three business days. During this time, your lender will do a final check of your loan file to ensure it is eligible to be funded. This may include reviewing your credit report and employment, so it is important not to make any large purchases or change jobs during the process.
You may also need to provide any additional documents (prior-to-funding conditions) to tie up any loose ends. If a Sunday or federal holiday falls during these three days, it may take an additional one or two days to complete the process. It is important to sign your loan documents with enough time to spare on your rate lock to avoid any delays or extensions, which can be costly. It is generally difficult to waive your right of rescission, so prepare to wait for these three (or more) days to pass.
10. Funding and Recording the Loan (1-2 Days)
Congratulations, the lender is finally ready to fund your new loan! This means that your old lender or loan servicer will be paid off. Essentially, the new loan proceeds will be used to pay off the original loan and you’ll have a fresh mortgage. If you decided to take out additional cash, it will either be deposited into your bank account or sent to you as a check within a couple of days. The funds will be released once your deed or loan is recorded at the county recorder’s office, which usually happens the day after funding. The funding process involves the new lender sending the money to an escrow account, and after it’s recorded, the money can be disbursed through escrow to all the relevant parties. For example, your lender might fund the loan on a Thursday and record it on Friday. Just be patient and keep an eye out for a payment on your old loan – log into the old loan servicer’s website and you should see a payment that pays off the loan in full. You might also receive an email from your old servicer congratulating you on paying off the loan, even though it’s just being transferred to a new lender. If you have an escrow account, you might receive a refund check in the coming weeks. Once everything is complete, you can go back to your regular life. This might include using your extra cash to buy new things for your home. It’s safe to apply for a new credit card, lease a car, or buy furniture now that the loan is closed. Just make sure the loan is truly closed before proceeding. Lastly, keep an eye out for details on where to send your first mortgage payment and when it’s due. Your loan will probably be transferred to a new loan servicer, and you’ll need to make payments to them going forward. Make sure to set up an online account with them as soon as possible to avoid any delays. Don’t forget to review your new escrow account (if applicable) to ensure everything looks correct.
How long does it typically take to complete the refinancing process, from start to finish?
To give you an idea of the time frame for refinancing, it usually takes about 45 days from start to finish, but it can be shorter or longer depending on various factors. If you have a straightforward loan and your lender isn’t too busy, the process could be completed in as little as 30 days or even less if everything goes smoothly. However, it’s important to keep in mind that the time of year you apply and your specific loan situation can also impact the timeline. It’s usually quieter in the fourth quarter of the year and busier in the spring, so it’s a good idea to be prepared for the unexpected and give yourself a buffer by not scheduling any plans that could potentially conflict with the closing date. Remember, it’s always a good idea to work with a reputable lender or mortgage broker to ensure a smooth process. Happy refinancing!