If you’ve purchased a home before, refinancing may be a thought that has crossed your mind. When thinking of refinancing your mortgage, running through a checklist and a series of questions can be helpful in deciding which refinancing approach is best for you. Below is a step-by-step guide to go by in the process of considering to refinance your mortgage.
- Define your reasons/ benefits for refinancing:
Do you want to change your mortgage term? E.g: A 30- year mortgage will allow for lower monthly payments, whereas reducing your term to a 15- year mortgage helps you save on interest. You may also want to look further into a fixed rate conventional loan, where you can choose a custom term.
Do you want to start using home equity to pay off debts? Home equity is the share of the home that you own, which has already been paid during your current mortgage. If you are thinking of refinancing for this reason, you will need to own 20% equity of your home in order to avoid paying for the PMI: (Private Mortgage Insurance is a type of mortgage insurance usually required with conventional loans where the down payment is less than 20% of the home purchase price to protects the lender if a buyer stop making payments on a loan.)
Do you want a Cash-out Refi for home improvement work? A cash-out refinance is when a current mortgage loan is refinanced for a higher value than the existing loan, and the borrower receives the difference between the two loans in cash. Remodeling your home with this money may help increase the value of your property.
- Fees to Consider:
Closing Costs: Refinancing may come along with additional fees because it is a similar process to getting a new home loan. Some costs that may arise range from attorney fees, title insurance, and appraisal/ bank fees. It is important to evaluate the costs of fees before deciding to refinance to ensure that the sum of the fees will not end up impacting you negatively. Speak with one of our expert lenders at A&D Mortgage for a better idea of how much costs from closing a new deal will amount to.
For the refinancing approval process, your loan officer will require specific documents to complete the application:
Proof of Payments:
Proof of past bill payments will guarantee an income to allow a refinancing to occur and to help your lender prove your financial ability to pay for your updated mortgage, and any other expenses.
Tax Returns, W-2s, and 1099s:
Lenders are likely to request copies of these documents to prove a work history of at least two years.
Insurance- Title and Homeowners:
Title insurance is helpful for your loan officer to verify names, legalities of property descriptions, and taxes.
A copy of your homeowner’s insurance will serve to prove that you have enough coverage on your home that is up- to- date. If the lender requests that your home value be assessed, that will tell how much homeowner’s insurance coverage will be required.
These documents are helpful to provide the security that you have sufficient funds to pay for the fees incurred at closing, and a minimum of two months payment for your mortgage. This will be assessed by providing personal and investment bank statements, any past loans, or lines of credit.
In addition to providing documentation, you will also need to sign the Closing Disclosure which will include the value and term of the loan, the interest rate, origination costs, and which amounts will be collected from property insurance, taxes, and homeowners insurance.
To begin the refinancing process or to ask more questions about if refinancing is a good option for you, please contact one of our loan officers at A&D Mortgage who will be happy to assist you!