Step 4:Choose a lender and start the process.

Once you’ve found a lender who appears to offer the best rates and terms based on your situation, you can move forward with them by filling out a full loan application.

However, you may want to spend time comparing estimates from more than one lender, and potentially getting a Loan Estimate from each. This simple document includes the loan terms, how much you’ll owe each month, and the estimated closing costs you’ll be expected to pay to refinance. Getting a Loan Estimate from multiple lenders is the best way to shop around and make sure you’re not overpaying for fees or settling for a new loan with inferior terms.

Once you decide to move forward with a lender, you’ll want to lock your interest rate so you are no longer at the mercy of the market. The goal at that point will be closing your loan before your locked rate expires, which should be doable since mortgage mortgage refinance loans take 30 to 45 days to complete.

Once you fill out a loan application, you’ll typically need to supply your lender with information required for your home loan. This usually includes two years of tax returns, at least one month of pay stubs, further proof employment or an explanation for any employment gaps, 60 days of bank statements, and proof of any other income you have.

Step 5:Prepare your home for the appraisal.

Part of the refinance process involves getting an appraisal for your home. After all, you need to be able to prove how much your property is worth before a lender will let you trade out your current home loan for another.

Whether your goal is refinancing to get a lower monthly payment or to get cash out, you’ll want to make sure your home is in tip top shape for appraisal purposes. Steps you should take include repairing any obvious damage to your home, sprucing up the indoors and outdoors for a clean, updated look, and cleaning your entire property inside and out. Also make a list of updates you’ve made to your home that could help an appraiser reach a higher value. If you’ve replaced your HVAC system or your roof, for example, you should tell your appraiser about these improvements.

Refinancing Your Home:Frequently Asked Questions (FAQs)

Refinancing the home you love? These frequently asked questions can help you learn more about the process.

The purpose of refinancing your home varies from borrower to borrower. However, many consumers refinance their home loans in order to secure a lower interest rate that will help them save money. Others want to get a new loan with a lower monthly payment, and homeowners also refinance in order to switch up the term of their home loan — for example, moving from a 30-year loan to a 15-year mortgage.

You typically need to wind up with at least 20 percent equity in your home after a refinance if you hope to avoid paying private mortgage insurance, or PMI. Many lenders will allow you to refinance with less than 20 percent equity, however, although equity requirements can vary depending on the bank.

You can apply for a mortgage online and from the comfort of your home, and this is also true if you plan to refinance a mortgage you already have. Many lenders allow you to upload the mortgage refinance documents online, and some will even close the loan at your home address or any other place of your choosing.

Generally speaking, you’ll need a credit score of 620 or higher for a conventional mortgage refinance. However, COVID-19 has left many individual lenders with no choice but to tighten up their standards, which means some lenders may require a score of 700 or more. Government programs like VA home loans and FHA loans tend to come with more lenient credit score requirements, so make sure to check on these options if you believe you could qualify.

When you close on your mortgage refinance, you’ll pay many of the same fees you paid when you took out your mortgage to begin with. Fees you’ll need to pay include credit report fees, title fees, escrow fees, notary fees, and recording fees. You will also need to pay an appraisal fee and lender fees that cover processing and underwriting. If you’re paying points on your mortgage in order to secure a lower rate, the cost of each point is typically equal to 1% of your new loan amount.

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If you’re paying a higher rate than the lowest rates advertised right now and your finances are in relatively good shape, you really have nothing to lose by checking mortgage rates to see if refinancing could be worth it. If you were willing to put in the effort to apply and gather all the documentation required, you could easily save thousands of dollars in interest payments on your loan, pay off your mortgage faster, or both.

But it all starts with shopping around among mortgage lenders online and in your area. Since interest rates may not stay this low forever, the time to start shopping around is now.