Buying a house is an exciting time.
Whether it’s your first house, your second house, or your dream house, your mind is filled with possibilities, paint colors, landscaping plans, and just an overall excitement. We rarely spend a lot of time worrying over the paperwork and nitty gritty details, like the interest rate you’re going to receive on your mortgage. And why should you? Buying your house SHOULD be a happy and exciting time for you!
But then the dust settles, you unpack your boxes, and time passes. One day, a few (or many) years later, you happen to read an article titled “NOW is the time to refinance your mortgage!” and you stop and think, ‘When can I refinance my house?’ So you begin to read about how interest rates have dropped and you have the possibility to lower your monthly mortgage payment. This gets you thinking about what interest rate you currently have on your mortgage and how much equity you’ve built up in your home. Is now a good time for you to refinance your house?
After digging in and researching the hows and whys, you finally decide that you really should look into refinancing your house. This leads to your next big question. How long does it take to refinance your house?
The easy answer is that the national average is 20-45 days, but everyone’s situation is unique. So, to better answer this question for you and help you figure out how long it’s going to take you to refinance your house, let’s break down refinancing step by step so that once and for all you can decide when you refinance your house.
What is your home worth?
You can check your home’s value through several different methods. There are many different online home value estimators, just like this one at NerdWallet. You could also hire a professional appraiser to do the research for you (and some refinancing institutions may ask you to do exactly this).
Whichever way you use to determine the value of your home, the number you calculate will help you determine exactly how much equity you have in your home. You will typically need at least 5% equity, but some lenders may want as much as 20% (or more) before they will refinance your home.
If you’re having trouble with this step, don’t hesitate to reach out to a lender. They can help answer questions and lead you towards trusted home value estimators that can provide the information you need to make a decision on whether or not to move forward.
What are your loan options?
There’s a lot to consider here. If you have a good amount of equity in your home, it might be worth it to consider reducing your current 30 year mortgage down to a 15. A good lending institution will walk you through much of this once you reach out to them, and they will have great advice on the types of loans you qualify for and what lower interest rate you could lock in. But general online searches on sites like LendingTree and other trusted sites should give you a great current overview of the going interest rates and loan options are for individuals in your situation.
Do you already have a trusted lender or do you need to “shop around?”
You might have a great relationship with the lending institution that gave you your original mortgage. And unless you’re unhappy with the service they provided, they will be a great place to start gathering information and feeling out whether or not refinancing is a good option for you.
However, if you feel like it’s time for a change and are looking for a new lender to refinance your mortgage, then do your research! You should be able to find online reviews and get an overall sense of the processes the lenders use. Gather a list of ones you’d like to talk with and start making phone calls.
Look for a lender who is willing to patiently answer all your questions and who is dedicated to finding the best refinancing options for you. These lenders will move at your pace, not try to rush you to make a decision or sign paperwork.
What types of documentation do you need to gather?
Speaking of paperwork, what exactly will you need to move forward with refinancing when you’re ready? Here’s a list of the typical paperwork you’ll need to supply to your lender in order to move forward with your refinancing.
Past 1-2 months of pay stubs
Past 2 years of W-2’s
Past 2 years of Federal Tax Returns
Past 2 months of bank statements
Your homeowner’s insurance policy
Recent mortgage statement
List of personal debts and amounts (car loans, personal loans, student loans, etc)
Proof of supplemental income (if applicable)
Your lender will supply you with a complete list of documentation needed, but it never hurts to begin gathering these documents early in the process so that you have them on hand and can make the process run a little more smoothly.
Ready to apply for your refinancing loan?
You’ve valued your home, you’ve done your research and picked out your trusted mortgage lender, and you’ve begun gathering all the paperwork you think you’ll need for the process. What happens now?
Once you’re ready to begin, you will fill out the necessary paperwork to apply for a loan from your lender. (You’ll be glad you gathered all those documents in advance here as they will help you answer questions on the loan application!) From there, you’ll receive a loan estimate and the loan processing will begin.
During this time is when you’ll want to pay close attention to interest rates as at some point you’ll have to lock in your rate. You can lock in a rate as early or as late if you want. Some individuals (who are far braver than I am) like to wait until the last minute in the hopes that the rate will drop further before locking it in. This is your choice and your mortgage lender will have advice for you on how interest rates have been fluctuating lately.
As your lender is processing your loan, they may ask for additional information or even for an official appraisal of your house, if you didn’t already receive one. While this will be an additional expense for you, your lender should set up the appraisal for you and handle communications with them.
Now you’ve done the hard work and it’s time to sit back and let the Underwriters do their work. They’ll review all of your information and determine if there are any missing pieces of paperwork that need to be filled in. If they need any additional information, they, or your lender, will reach out to you.
Once the underwriters are sure that all the paperwork supports your new loan, all that is left is for you to sign documents and close on your loan. Then you can enjoy your new lower interest rate and monthly payment!
All in all, the process is fairly streamlined, especially if you understand the steps and the documentation needed. Going in blind and unprepared can result in delays, headaches, and lots of additional stress for both you and your lender.
Having a basic understanding of how refinancing works can also tell you when to refinance your mortgage. If you see interest rates dropping and you keep tabs on how much equity you’ve built up in your home, you’ll be much more likely to lock in the best interest rate.
While the average refinance takes anywhere from 20-45 days, know that every situation is unique. It may take you longer to sort through and gather all the necessary paperwork, or you may have additional questions that require a little more research and understanding before moving forward. Doing your due diligence can only help to speed up the process.
You can also check out this article by Realtor.com which offers up tips on how to speed up refinancing your mortgage.
You may have read through this article and are thinking: ‘Yes! This is something I’ve been thinking about for a while now!” And if that’s the case, I urge you to reach out to me or your trusted mortgage lender, today. We’ll be happy to answer any questions you might have regarding refinancing and can get started as soon as you’re ready to move forward.
For more information on refinancing, Click Here to learn more and to get started today. You may find out that now isn’t the best time for you to refinance your house, but even if that’s the case, you may learn that you’re not that far away from being able to refinance. Learning what you can now can help you be prepared for that right time when it comes along.
So don’t wait! Reach out today to find out if refinancing your home is the best option for you.
AUTHOR BIO
Will Foster | First State Bank Mortgage Senior Loan Officer
I became a mortgage lender in 2010, right after the "bubble" popped, and the mortgage industry underwent an incredible transformation. This has given me a unique advantage in the fact that I have never known anything other than the highly-regulated world we now live in.
Throughout my years of experience, my primary goal has been to keep up with the constant changes in the industry so I can help my clients investigate all of their options and maximize savings. In addition, because I specialize in Conventional, FHA, USDA, Jumbo, portfolio, and VA refinances and purchases, I can help a wider variety of individuals, families, and investors identify and secure the right loan to best suit their future interests.
The mortgage process can be a little confusing and even overwhelming these days with all of the regulations. I guide my clients through the process from start to finish, and I try and make it as painless and hassle-free as possible.