In order to refinance a mortgage, you go through almost the same process as you did when you first took out your loan. Here are seven quick steps to refinance your mortgage:
1. Decide on your refinance goal
A mortgage refinance should help you improve your financial picture. In lending terms, this is called a tangible net benefit. Set a clear goal upfront — lowering your payment, paying your loan off faster, tapping equity, etc. — so you know exactly what you’re trying to achieve. This will also help lenders better prioritize what you need when quoting mortgage offers.
2. Check your credit score and finances
Pull your credit reports for free from AnnualCreditReport.com ahead of time and check your scores, too. If you spot errors on your credit reports, notify the credit agency in writing to correct them. Lenders will do a full vetting of your finances, including your income, employment history, debts, assets and credit scores.
3. Figure out how much equity you have
In general, the more equity you have, the better your mortgage rate will be. You build equity over time by paying down your principal loan amount and/or because home values in your area have increased. To find your equity amount, subtract your current mortgage balance (and any other loans against the home) from your home’s current value.
4. Shop around for refinance lenders
Apply for a refinance with three to five lenders within two weeks (and typically no more than 30 days) so the inquiries don’t negatively impact your credit. Mortgage rates fluctuate daily, so you want to apply for a refinance within a shorter time frame to get comparable offers. Look closely at the Loan Estimate from each lender to compare closing costs, lender fees and other key loan terms.
5. Choose a refinance lender
Once you’ve compared Loan Estimates, choose a lender who can help you best achieve your refinance goal. The Loan Estimate should detail how much cash you’ll need to close, as well as the terms of your new mortgage. This is also a good time to get a written rate lock confirmation to ensure your rate won’t change at closing.
6. Prepare for the property appraisal
Your lender will order a home appraisal to determine your home’s value. Make sure you tell the appraiser about any improvements you’ve done to the home. It’s also a good idea to clean your home and make it as presentable as possible.
7. Close on your refinance
Ensure all of the details on your Closing Disclosure are correct, and make sure your closing costs haven’t dramatically increased from the Loan Estimate. You’ll pay closing costs and sign paperwork for your new loan, and your old loan will be paid in full by your new lender.