Home Loan Refinancing Made Easy: A Step-by-step Walkthrough for Homeowners
After buying a home, it is possible to refinance the loan to better meet the homeowner’s goals. Refinancing can be done at any time, but it is essential to time it correctly to avoid overpaying for the home or taking too long to reach the break-even point after paying the refinance fees. Before refinancing, homeowners should know what to expect from the process. The process typically includes the steps here.
Figure Out the Goal for Refinancing
It’s important for homeowners to think about their goals for refinancing. They may want to switch to a shorter mortgage to pay off the home faster or reduce their monthly payment so they can have more money in their pocket each month. They also may want to switch to a fixed rate or refinance while the interest rate is significantly lower to save on the overall cost of the home. Using a refinance calculator can help homeowners see if refinancing is a good idea for them at this time.
Check Credit and Home Equity
Before starting the process, it is a good idea for homeowners to check their credit. If their credit score is low, they can work on improving it before refinancing the home to get the best deal possible. It is recommended to have at least a 740 for the best rates, but at least 620 is needed to refinance. Homeowners will also want to look at their home equity to make sure they have paid off enough of their home to get the best terms and avoid private mortgage insurance.
Calculate the Break-Even Point
Closing on a refinanced loan does cost money, so it’s a good idea to check the break-even point before deciding to refinance. If it takes too long to pay off the money used to refinance the loan, it may not be worth refinancing yet, as the homeowner won’t be saving as much money. If it can be paid off quickly, on the other hand, it may be worthwhile to do the refinance.
Get a Pre-Approval and Submit the Application
Once the homeowner is ready, they can get a pre-approval for the refinance and submit their application. At this point, it goes through underwriting, and a home appraisal is done. If everything is approved, the final step is the closing, where the homeowner will start the new loan.
Review Closing Disclosure and Close on the New Loan
Once the application is approved, the homeowner will receive the closing disclosure that details all of the final loan terms, the interest rate, monthly payments, closing costs, and more. It is important to read through this carefully before closing to make sure there are no issues with it and that the homeowner understands everything in it. After that, it’s possible to close on the new loan and start making the new payments.
If you’re ready to refinance, use the steps here to move through the process and make sure it’s the right option for your financial needs. Be sure to find a lender that works better for your financial goals and read through all documents carefully to understand the full impact of the refinance. Done correctly at the right time, this could be a great way to cut costs and save on the interest payments for the home.
