It’s safe to say that every homeowner wants to make sure they get the best deal possible on their home loan. This may or may not happen on your first loan, but luckily, there are options available that can help to rectify a less-than-ideal first loan experience. If you’ve been wanting to change the terms of your loan, decrease your interest rate or receive some of your home equity in cash, then refinancing may be a great option for you.
Each year, homeowners decide to refinance their homes with credit unions. Solarity Credit Union offers a variety of refinance options to suit your specific needs and can assist you through the process and answer questions like, “What are the steps to refinance a house?” or “When is a good time to refinance?” Here are the answers to a few frequently asked questions about refinancing a home to get you started.
1. What are the steps to refinance a house?
A popular question that people ask about refinancing a home is what the steps are to accomplish it. Refinancing is easier than many think, and with a little bit of help, you can be just a few steps away from refinancing your home.
Choose a great lender
Complete the refinancing application and provide required documentation
Receive a loan estimate
Wait for loan processing
Receive final loan approval
Close on refinance
The first step you want to take when considering refinancing is to find a great lender. Credit unions like Solarity are known to offer borrowers competitive interest rates and amazing customer service. Financial professionals can also answer all your other questions about refinancing.
Once you find a financial institution you trust, you can complete a loan application and provide the required documentation, including mortgage statements, current employment status and paystubs, tax returns and so forth. The lender will then run a credit report and provide you with an estimated loan amount.
When your loan amount is established, you’ll then move on to the underwriting process. During this time, the lender will confirm your financial details are accurate. This is also when the home appraisal and inspection take place. If you are applying for a cash-out refinance, the appraisal amount will help to determine how much cash you can access based on your equity.
Once all values are settled, you’ll be approved for your final loan amount. After that, you’ll be ready to close on your new home loan.
2. What different types of refinancing are there?
Lenders generally offer a few different refinance options. The first is a traditional refinance, which simply allows you to pay off the existing balance of your home loan with a new loan of the same amount. With this option, as well as the other refinance options, you’ll have the opportunity to negotiate your new terms and possibly secure a lower interest rate than you had previously.
Another refinancing option is to do a cash-out refinance, which is useful if you have a lot of equity in your home and could use some extra cash in your pocket. It’s a great way to extract some of the equity in your home, with up to 80% of your home equity eligible to be cashed out.
Individual lenders may offer additional refinance options, so shop around and find the best match for your needs.
3. When is a good time to refinance?
The right time to refinance depends greatly on your unique financial situation. Still, there are times that are considered better than others for homeowners to make this change. In general, it’s a good time to refinance if you know you can secure a lower interest rate. Rates fluctuate routinely, and catching them on a downswing can come with a lot of benefits. Your interest rate will determine how much interest you pay over time, and securing a lower one can end up saving you thousands of dollars over time. Typically, refinancing is worth it if you can decrease your mortgage rate by 1% to 2%.
Refinancing may also be a good decision to do sooner if you are in need of some extra cash. With a cash-out refinance you can use your home’s equity to get cash in hand. This cash could help you pay off other debts or make home improvements while you also secure better loan terms.
4. How long does it take to refinance?
The amount of time it takes to close on a refinance will vary from situation to situation. If the lenders aren’t in a busy season, and you produce the needed documents in a timely manner, the refinance process can work pretty quickly. Much like a home purchase loan, a standard refinance can take anywhere from 30 to 60 days, but there are a few exceptions to that rule. Refinances tend to move a little quicker than home purchase loans, and with the right refinance option, you can close in as little as two weeks.
5. What do I need to refinance?
There are a few things that you’ll need to have ready if you’re planning to refinance your home, and one of those is an existing loan. Because the process of refinancing requires you to transfer your existing mortgage balance from one loan to another, you’ll need to have a home loan in place already. You’ll also need to have some cash saved to pay for the closing costs associated with it. Much like when you secured your first loan, the process of refinancing requires homeowners to pay for closing costs. Saving some money for this ahead of time can help you be more prepared for a home refinance. The exception, of course, would be if you opt for a no-closing-cost refinance.
You’ll also need to have your financial documents in order. Credit unions want to know that your finances are in good standing, that you’re employed and that your credit score is sufficient. For a full list of the documentation to have ready, take a look at our home loan checklist.At Solarity Credit Union, we know that knowledge is key to healthy finances. If you still have questions or would like more information about the steps to refinancing a house, reach out to our Home Loan Guides. We can also help you get started with the refinancing process.