Refinance Application Process
The application process to refinance your mortgage is very similar to the initial mortgage application process. The typical refinancing proceedings involve researching the lenders that offer the best terms that fit your circumstances and help reduce the long-term cost of home ownership. To help you identify the best refinancing deal, examine some of the procedures you are most likely to encounter.
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Loan Application
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Lenders require a loan application to begin the process of refinancing your loan. Your application provides lenders with the necessary information used to evaluate how much you can afford to borrow. A typical application includes identifying information about you, such as employment history, income, expenses and debts, to enable the lender to determine if you can afford to make mortgage payments. In addition to evaluating your application, lenders examine your credit report to determine your creditworthiness.
Appraisal
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The refinancing process also requires your lender to appraise the value of your home. Lenders appraise properties to ensure that the property is worth enough to cover the loan. This is important to lenders because your home serves as collateral for the loan you are refinancing. According to the Federal Reserve Board, your lender may skip the appraisal if your home has been appraised recently. Otherwise, home appraisal fees can range from $175 to $350.
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Inspection
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In addition to appraising the value of your home, lenders might conduct an inspection of your home. According to the Federal Reserve, a home inspection checks the structural integrity of your home, the presence of pests, the condition of the septic and the water systems. Lenders have engineers, property inspectors or consultants perform the inspection but state authorities may impose additional inspection requirements.
Insurance
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Refinancing your mortgage still requires you to have both mortgage and homeowner's insurance. An exception to mortgage insurance exists if you have at least 20 percent equity in your home. Otherwise, you need mortgage insurance, which protects your lender from losing money on your loan if you are unable to make mortgage payments during the repayment period. In addition, homeowner's insurance, also called hazard insurance, protects you against loss or damage to your home in case of fire, crime or natural disaster.
Closing Costs
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Like with the mortgage process, refinancing costs a significant amount of money. Overall, refinancing costs are about 3 percent of the amount of money you are refinancing, according to 2010 estimates from the Federal Reserve Board. Some of the costs associated with the refinancing process include points, which are prepaid interest points if you want to secure a lower interest. Typically, a point equals 1 percent of the amount you are refinancing.
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