How to Refinance a House

The process of refinancing a house is straightforward. However, motivations for refinancing vary. Refinancing a house may save a homeowner cash. Lower interest rates motivate some homeowners to think about refinancing. Other homeowners wish to get out of a variable rate mortgage. The process of refinancing a home is much like the process of obtaining an initial mortgage. The homeowner must decide if refinancing is worthwhile. He should research rates and lenders. He then must complete the process with the selected lender in order to accomplish this mission.

Difficulty: Moderate

Instructions

1. Decide if refinancing makes financial sense. Some homeowners consider only the interest rate percentage when refinancing. The length of the mortgage will change the principle and interest payments. Longer mortgages result in more interest being paid. Consider the costs of other fees. The fees can include escrow, loan discount points or closing costs. You may not save any money despite the lower interest rate.

2. Research and select a lender. You should start searching close to home. Your home bank may offer a great interest rate, and the location may be ideal. Other large commercial banks may be good alternatives. Mortgage brokers exist to connect an individual to a variety of institutions offering refinance loans. These individuals may have good insight into which lender will provide a good fit for you. Online businesses also exist to assist in the selection of lenders.

3. Once a lender is selected, fill out a loan application and submit it to the lender. You should gather all pertinent information together prior to starting the application. Names, addresses and phone numbers of current employers, creditors and references will most likely be needed.

4. Be patient. The lender will verify the information on the loan application. Usually this consists of confirming your income, credit-worthiness and assets. The lender may wish to have an appraisal done on the home. This is to ensure it is worth the amount being financed. On rare occasions, a title search may be completed to ensure no other liens to the property exist.

5. After your information is verified, the loan will be approved or denied. Assuming the loan is approved, a closing date for the loan will be set. If the loan is not approved, the lender must provide you with the reason why it was rejected.

6. Applicants and the lender review and sign the loan documents. These documents may include escrow documents and actual loan paperwork. There may be a three-day window in which the applicant may change their mind and discontinue the loan.

7. The lender uses the loan proceeds to pay off the original mortgage. Payment information on the new mortgage will be sent to the borrower, usually withing four weeks. The homeowner begins making payments to the new mortgage lender the month following the payoff of the original home loan.

Tips & Warnings

• Refinancing a home is not a difficult process. Researching the lender will be one of the most important steps a homeowner takes.
• Pay attention to fees charged by the financial institution refinancing the loan. Excessive fees may make it less desirable to refinance.

Resources

• Federal Reserve Bank Information on Mortgages