Should You Refinance? Learn Reasons Why and the Process

07.09.2021 | Category: Homebuying

The driving reasons why you want to refinance will help your loan officer recommended the most beneficial loan type for your goals.

The Refinancing Paperwork and Preliminary Process

Similarly to the loan process you experienced when purchasing your home, when you’re refinancing your mortgage, you’ll be asked to provide proof of income, bank statements, and W-2’s along with additional information on your current home mortgage. There may be additional paperwork requested depending on your financial situation and the refinance loan program you’ve selected.

Thanks to enhancements in our mortgage process, we’re now able to offer our clients a more automated way to be able to submit asset, income, and credit information. With our automatic check process, our clients often receive significantly less paperwork requests or repulling of information during the mortgage process. It can not only help to cut down on the frustration of trying to track down the required information, but also expedites your entire mortgage process.

While we highly recommend taking advantage of the automated paperwork option, here is some paperwork you may want to grab as you prepare to begin the refinancing next steps:

Business and personal tax returns for the past 2 years, including W2s/1099s
Most recent pay stubs from the past 30 days
Benefit letters from Social Security or Pensions
Trust documentation if you are using a this as qualifying income
Divorce and/or child support agreements
Check your home equity and determine your home’s value — depending on state regulations a formal appraisal may be necessary at some point in the refinance process
Budget for the cash you may need at closing

How Much Does it Cost to Refinance a Mortgage?

Similar to when you purchased your home, the costs to refinance your mortgage include a loan origination fee, an appraisal fee, closing costs, title and attorney fees (depending on the state that you live in). Closing costs typically equal about 2-3% of your total loan amount.

When you work with an experienced lender like Mutual of Omaha Mortgage, it’s important to note that you may not have to incur any out of pocket expenses when you refinance your mortgage. The team at Mutual of Omaha Mortgage is prepared to help you learn what options are available to you that can help you structure closing costs and other fees into the overall cost of your refinance loan.

Another important aspect you’ll want to consider is the break-even point. The break-even point can be defined as the amount of time that you’ll need to stay in your home in order to recoup the costs associated with refinancing your mortgage. Here are a few questions that you can ask yourself to help you determine if now is the right time is to refinance:

Are you planning to stay in your home for more than 3 years?
Are you still paying PMI and have built over 20% equity if your home?
Do you have an adjustable rate mortgage?

Cost is just one thing to consider when it comes to refinancing your home loan. During the refinance process, your loan officer will help you understnad all of the fees and costs associated with refinancing your mortgage.

Step-by-Step Process to Refinance Your Mortgage

Applying for a refinance loan is very similar to your purchase experience. The process generally starts by filling out a home refinance application. Once your application has been submitted, one of our refinance specialists at Mutual of Omaha Mortgage will review your application, discuss your refinance goals, and present a variety of options.

Once you decide to move forward with your refinance, the next step is to work with your mortgage loan officer to select a home loan product and lock in your mortgage rate. Mortgage interest rates are tied to financial markets and can fluctuate daily. Once you’ve locked in your interest rate, you’re protected from these market fluctuations going forward.

As your refinance moves into the processing phase, you may be asked to provide additional financial documents and information. It’s important to try and provide this information as quickly as possible to avoid delays. If you have an existing VA-backed mortgage and you’d like to refinance your mortgage, a VA IRRRL (interest rate reduction refinance loan, sometimes referred to as a VA Streamline) is a quick refinance option with fewer requirements.

In the process of preparing your refinancing application for underwriting, you’ll receive a Loan Estimate that itemizes your loan terms, rate, fees, and affiliated costs for obtaining the refinance. Once all the refinancing paperwork has been compiled, your file is sent to the underwriting team. The underwriter is the key decision maker, they’ll be checking to ensure that you (the borrower) and the property you wish to refinance meet the eligibility requirements for the loan product. You may receive questions or requests for additional information, known as conditions, during the underwriting process. Once all of the conditions from the underwriter have been satisfied, you’ll be issued a Clear to Close and your closing date for your refinance will be scheduled.

At closing, you’ll sign all the final loan documents for your refinance. Congratulations! After signing the final loan documents, your mortgage refinance process is complete. Please keep in mind that if you’re doing a cash-out refinance or home-equity loan it will typically take 3-5 days for your funds to be available.

3 Types Of Refinance Mortgage Loans

The type of refinance that’s best for you depends on your individual circumstances and what you’d like to accomplish. Below are 3 types of refinance loans and their unique benefits:

Rate-and-Term Refinance: A rate-and-term refinance will allow you to adjust the interest rate on your mortgage or loan term without adjusting the amount of the loan. If you’re looking to switch from an adjustable-rate mortgage (ARM) to a fixed rate mortgage, would like to pay your mortgage off sooner, or are looking to lower your monthly mortgage payment, you should consider a rate-and-term refinance.

Cash-Out Refinance: With a cash-out refinance, homeowners refinance their mortgage for more than they currently owe, and then keep the difference (essentially tapping into the equity that they’ve built in their home). You can use cash from your home for many things including vacations, weddings, college tuitions, home improvements, debt consolidation, and more.

Home Equity Loan: A home equity loan allows you to use the equity that you’ve built in your home to obtain a loan. A home equity loan is for a fixed amount of money and is limited to 85% of the equity in your home. A home equity loan is an alternative to cash-out refinancing. Getting a loan on your home equity can be beneficial if you’re looking to access cash but don’t necessarily want to refinance your existing mortgage. It’s important to know that a home equity loan functions exactly the same as a “regular” loan. You must pay it back, on time, at the agreed upon amount.

Using a Mortgage Refinance Calculator

As you consider refinancing your mortgage you may want to run a few different scenarios using our Mortgage Refinance Calculator. A refinance mortgage rates calculator can help you calculate new monthly mortgage payments and understand how your refinance interest rate will impact your monthly mortgage payment.

To compare current payments with what a refinance could offer, checkout our refinance calculator.