If you are a current homeowner, it’s likely you’ve heard the term “refinance” before. You may have even refinanced a home you owned in the past. If you purchased your home more than a year ago, there’s a good chance that you have been sent information about refinancing from the loan officer who helped you secure financing when you purchased your home. Whether you’ve refinanced before or you’re just now exploring the concept as an option, we hope to address some common questions about refinancing in this post.
What does it mean to refinance a mortgage?
When you apply to refinance your home loan, it means you are attempting to pay off the existing loan and replace it with a new loan. The remaining balance on the former loan is paid off using the new loan, and after closing you begin to pay off the balance on the new loan.
Why do people refinance?
Refinances are not required during the life of any loan, but if you might be able to get a better rate or term or other benefit, it’s worth looking into at least. The reasons why people refinance their homes typically comes from a place of wanting to improve or insure their family’s financial futures. This can be done in a myriad of ways, with multiple options for refinancing offering different outcomes for the borrowers. These options include but are not limited to lowering your interest rate, attempting to shorten the loan term, using the equity already paid into a home to finance a large purchase, or consolidating debt.
How does the refinance process differ from the purchase process?
The primary difference you will notice between the purchase and refinance process is, unlike the loan process when you purchased your home, you are already the homeowner. That means there will be no selling contract, no down payment to assemble, and no real estate agents involved, among other things. Much of the loan process for a refinance will be the same as the process for purchasing. Your credit and income will be evaluated. You will take out a loan application with a loan officer, and a team of underwriters and processors will review your application in hopes of issuing an approval. Most types of refinance loans require an appraisal for the property being refinanced for the same purpose as the appraisal in the buying process; before lending, the lender will want to verify that the property is worth the amount being loaned.
How do I need to prepare for refinancing?
To make your refinance process go smoothly, prepare in advance as much as you can. Assemble your financial documents, namely your most recent bank statements, your W2s and/or your tax returns from the past two years. You may also be asked to provide recent pay stubs, so have those on hand as well when you apply. If you are uncertain of your credit score or your score needs reviving, contact the loan officer of your choosing before you apply. At Southern Trust Mortgage, we have credit experts on staff to help you rehabilitate your credit score before applying.
As for your home, you will want to make sure that your property meets regulations for health and safety measures, such as smoke detectors and being certain that any additions you may have made to the property since purchasing were permitted by the city in which you live. Since the appraised value of your home can tie directly to the rates lenders offer you, it is in your best interest to get your home into the best possible shape before applying.
Southern Trust Mortgage has been helping clients buy and refinance properties since 1998. Our loan experts are knowledgeable in all aspects of how a home loan refinance can benefit you. Contact us today to learn more!