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If you’re looking to lower your interest rate on your mortgage while rates are relatively low, there are a number of factors to consider before going through the process, especially understanding how long it might take.
The mortgage refinance approval process can sometimes take just as long as getting a new mortgage. It can be weeks to over a month to process your paperwork and for the underwriters to verify the numbers.
Here’s a look at what the refinance process entails, and some ways you can help make it go as smoothly as possible.
How Long Does a Refinance Take?
Refinances can take from about 45 to 60 days depending on several factors, including the type of loan. For example, timing can be affected by whether it’s a government-backed mortgage, such as from the Federal Housing Administration (FHA) or the Veterans Affairs (VA) office, which can take longer than a conventional loan. It might also be more complicated if you have a home equity loan or line of credit (HELOC) along with a conventional mortgage, and need to wrap them into a new loan.
During the Covid-19 pandemic, refinances have often taken longer mainly because of the rush to get new mortgage loans or refinancing during a time of low interest rates.
Applying for a Refinance
Refinancing your existing mortgage is similar to the process of securing a mortgage for a new home purchase.
First, you’ll want to look for the best interest rate and lowest closing costs. Sometimes the lender who gave you the mortgage initially will offer a better deal to refinance to keep your business. But that is not always the case, so it’s important to shop around.
Compare what different lenders offer before making your final decision or filling out an application that will cause a hard credit check. If you know some basic details like what’s left on your existing mortgage loan, income and credit score, the lender can give you a rough estimate of what your rate will be to refinance the mortgage without pulling your credit history.
Most lenders now make it easy to apply online and conduct much of the application process through a portal. But keep in mind that as you go through the formal application process, the lender will require documented proof, like your income and mortgage balance.
Related: Mortgage Refinance Calculator
4 Ways to Help the Refinance Process
There are several ways you can help the refinance process move along as quickly as possible:
1. Check Your Credit
Your credit score is one of the most important factors in determining your interest rate. If you can lower your interest rate by a point, for example, you could save thousands over the life of your loan and ensure your monthly payments are more affordable.
Check your credit score and report to make sure everything is accurate or needs improvement. Your credit report has a direct influence on your credit score, so you’ll want to make sure it doesn’t have any errors that could derail your refinancing.
Any missed or inaccurate payments could hurt your score because your payment history makes up 35% of your FICO credit score, and mortgage lenders typically use that score to determine your interest rate.
If you find mistakes on your credit report, dispute them immediately, and your credit score could see an immediate improvement once it is cleared from your credit report. The time it takes to clear from your report varies.
2. Review Your Finances
A refinance can cost you thousands of dollars in closing costs, so it’s a good idea to make sure you can handle these expenses. For example, you’ll likely have to pay a few hundred dollars for an appraisal, and costs like lender underwriting fees and title insurance could total more than $1,000.
Shop around for the lowest fees as well as the best interest rate to save money upfront.
3. Prepare Your Documentation
The paperwork needed for a refinance is very similar to what you turned in for your original mortgage loan. This should make it easier to prepare the documents before applying and send them in as soon as possible once the lender requests them.
You could find out the full list of documents you’ll need when you apply, or shortly after. But tax forms and paycheck stubs are typically required off the bat. You might also need to provide property tax statements and employer contact information, as well as background on your homeowner’s association (HOA).
4. Ready Your Home for an Appraisal
You’ll want to provide the best estimate you can for the value of your property at the time of application, based on your previous appraisal, online estimate sites and an evaluation by a real estate broker, if possible.
Once you apply for a refinance, you’ll need to get your home ready for the appraisal, which determines whether your estimate is correct. If you delay the appraisal, it will push back the completion of your underwriting and the refinance closing.
Be prepared to schedule the appraiser’s visit as soon as possible. It might help to provide the appraiser with a list of upgrades made to the home, which can influence the value.
Make sure to tidy up your home inside and out because curb appeal can influence the home’s value. Make needed repairs so that the appraiser doesn’t notice a leaky roof or basement; broken toilet or windows; or a pockmarked driveway. Also, clean up clutter in your yard and inside the home.
What Can Delay a Refinance?
There are many reasons a refinancing can be delayed, including:
- Lender bottlenecks. When mortgage interest rates are low, demand for loans and refinancing is higher. This can overwhelm the lending team. Even if you do everything right as an applicant, your loan might be delayed because the company can’t process your application fast enough.
- Appraisal issues. If the appraiser’s visit is postponed by days or weeks because of scheduling issues, that could push back the entire process. Also, if you get a prompt appraisal, but the value from the appraiser is less than what you need for the loan, it could jeopardize the loan itself. You might also seek another appraisal.
- Paperwork delays. It’s your responsibility to keep up with the lender’s paperwork demands. If you miss deadlines, it could delay underwriting and, as a result, the closing. The most likely paperwork items you’ll need to share are pay stubs from your last couple of paychecks, your two most recent tax returns, recent bank statements from the last two months and proof of homeowner’s insurance.
- Financial or credit complications. Your income level and credit record need to be consistently strong throughout the refinancing process. If you have a recent drop in income; pull out more credit during the process, which lowers your score; or have problems that show up on your credit report—any of these events can cause the underwriter to question whether to approve you and at what rate.
- Interest rate lock expiration. It’s likely you’ll lock in an interest rate early in the application process, but you’ll need to close on the loan before the lock expires. If you don’t, you will need to check on a possible rate lock extension with the lender or entirely new rate.
- Complications with title. If the title company finds another lien on your property other than the current mortgage loan, you will need to clear that up before the refinancing can go through. One common example is with a HELOC, which homeowners often take out to pay for renovations or other expenses. You will need to get permission from the HELOC lender before you refinance.
In Closing, Plan Ahead
Just as with a new mortgage application, it’s best to plan weeks or months ahead for a refinance to make sure everything you need is set, from the condition of your house to the state of your credit report. Get everything prepared ahead of time and know what to expect so the refinancing process can move quicker than closing a mortgage for a home purchase.
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