Most homeowners know what a mortgage refinance is, but aren’t necessarily familiar with the process and many steps that take place along the way.
If you’ve never refinanced your mortgage, or haven’t in a while, it can be beneficial to refresh your memory so you know what to expect.
Whether you’re looking to refinance your home loan for a lower rate and/or cash out, the process is mostly the same.
Expect the entire thing to take anywhere from 30-60 days depending on your particular loan scenario and how busy lenders are when you apply.
Let’s break it down from start to finish. Note that stuff can happen concurrently or slightly differently depending on the company you work with.
Step 1. Prepare your finances and check your credit (3-6 months)
Before you even speak to anyone, you need to get your house in order.
This means setting aside liquid assets in a verifiable account and making sure they’re seasoned for at least two months, preferably three.
It also means getting a copy of your credit report (Credit Karma or another free service) and knowing your credit scores. Again, lots of free options like your bank or credit card company.
Along these same lines, stop spending on all your credit cards as much as possible if income is tight and qualifying could be close.
Reducing credit card spending could also improve your FICO scores, as could paying off credit cards in advance.
To make things really simple, you may want to go into the refinance application with zero balances on credit cards.
This is especially true of charge cards like American Express cards that don’t have a minimum payment listed on your credit report.
And certainly do NOT apply for any other credit prior to the refinance. We’re talking several months before.
Also take the time to set aside the last couple year’s tax returns and some recent pay stubs if you’re a salaried employee.
Once everything looks good to you, it’s time to start shopping your rate by reaching out to banks, brokers, lenders, etc.
Step 2. Speak to a mortgage broker and/or loan officer (1-2 weeks)
Your next step in the refinance process will be speaking with a mortgage broker or a loan officer employed by a bank/lender.
Before you do that, it’s also possible to generate a mortgage rate quote on your own, or shop rates on comparison websites.
Either way, you’ll want to speak with an actual human to verify the quote and discuss any particulars before formally applying for your refinance.
Be sure to gather multiple mortgage rate quotes from different banks and brokers as studies show real savings go to those who obtain two or more quotes.
Put in the time to compare Loan Estimates (LEs) from competing companies and pay attention to the closing costs as well as the interest rate offered (mortgage APR).
Step 3. Complete the loan application (10-20 minutes)
Your third step will be filling out a formal loan application, which won’t be too different than a home purchase application.
You’ll just tick “refinance” instead of purchase and fill in all the usual stuff like your property address, contact details, employment, income, and assets.
It might be possible to link your bank account details to the application by using login credentials and import other stuff along the way to make it easier.
Ultimately, it’s just a series of questions that shouldn’t take more than 10-20 minutes to complete.
Note that once you apply, you’ll likely receive countless mortgage mailers from competing lenders promising you the world.
Be sure to clear out your mailbox daily! Okay, maybe not that bad, but you’ll probably be slightly bombarded.
Somehow they find out that you’ve applied for a refinance, likely via the credit inquiry on your credit report.
The most common thing you’ll come across is the skip a mortgage payment pitch, which isn’t unique to any one lender, or special at all.
Step 4. Sign disclosures and review your loan application (10 minutes to 1 hour)
The next step will be signing page after page of loan disclosures, some of which have to do with privacy, your credit report, various insurance items, or your taxes.
The good news is they can typically be signed electronically, meaning you can breeze through in minutes depending on how fast a reader you are (or how thorough you are).
These forms give the lender the right to collect information about you to verify the details you entered on the loan application.
For example, after you sign these disclosures they’ll be able to obtain copies of your tax returns, or order a consumer credit report on your behalf.
You’ll also see a copy of your completed Uniform Residential Loan Application (Form 1003), which you should review to ensure no mistakes were made.
Take a moment to double-check all the inputs before you proceed – catching errors early on will make life a lot easier.
You should also see forms pertaining to your specific loan terms, such as the interest rate agreed upon, loan type, origination charges, closing costs, and so on.
This will include a Loan Estimate (LE) that contains all the important information regarding your loan.
Review it and make sure you’re happy with everything you see.
A couple key forms to pay close attention to pertain to whether your mortgage rate is locked or not locked.
Be sure you pay close attention to these if you’ve indicated that you want your interest rate locked in, or if you want to float your rate.
Step 5. Loan processing (1-3 days)
After signing disclosures, the loan officer/broker will order a credit report and review your application.
They will likely get in touch to collect any necessary items before submitting the loan to the lender.
This may include asking for tax returns, bank statements, a recent pay stub, an insurance policy on other property you own, or the ages of your dependents.
You may also need to verify vesting on title, or if you want an impound account or pay property taxes and insurance yourself.
It’s mostly a period of time to close any loose ends, dot the i’s and cross the t’s.
You’ll also probably be sent a credit card authorization form to pay for the home appraisal, which often acts as the “loan application fee.”
This kind of shows you’re serious about moving forward with skin in the game, aka several hundred dollars.
Step 6. Loan submission and underwriting (1-2 weeks)
If you’ve made it this far, it’s time to formally submit your loan package to the lender and get it in front of a loan underwriter.
This individual will carefully review your file and decision it, either with a conditional approval or a denial.
Hopefully you’ll be conditionally approved! If so, you’ll be sent a list of conditions that need to be met before you’re officially approved.
For example, they may ask for a recent student loan or credit card statement to verify the minimum payment.
Or they may ask for a CPA letter or business license if you’re a self-employed borrower.
If you didn’t provide bank statements, or they were incomplete, they may ask for additional copies.
This seems to be an area where borrowers always get perturbed, and illustrates why it’s so important to submit a complete loan package upfront.
The more you leave out before it gets to an underwriter, the more conditions you’ll have.
Put in lots of time upfront to avoid lots of questions later! And don’t argue with the loan officer or underwriter. Just submit documents in a timely fashion and play ball to get to the finish line.
Step 7. The home appraisal (1-2 weeks)
If you’re lucky, your refinance loan might qualify for an appraisal waiver, and one won’t be necessary.
Aside from saving you some money, it can also shave days off your refinance.
If an appraisal is necessary, an appraiser will reach out to you directly to schedule it. This might happen while your loan is being submitted.
Simply make yourself available to the appraiser so they can come out to your property ASAP.
If you delay them, it can slow down your refinance and potentially result in a lock extension. Try to get it done immediately.
Also be present for your appraisal so you can let them into the home if necessary to take pictures.
Take a moment to clean up your home as well – it never hurts the value to present a tidy home. And be courteous to the appraiser while you’re at it.
It can take several days or longer for the appraiser to write up the report and provide it to the lender. You will also get an electronic copy.
Hopefully it comes in at or above value. If it comes in low, you may need to rework your loan amount or be subject to a higher interest rate and/or closing costs.
If something material does change, you may need to re-sign disclosures and a “Changed Circumstance” form that details what happened and how it affects your settlement charges.
For example, a low appraisal will mean a higher LTV ratio, which will result in a higher mortgage rate and/or fewer lender credits (higher closing costs).
Don’t get tripped up or upset if you have to sign the “same thing” over again – there’s typically a rhyme and a reason to everything, no matter how bureaucratic.
Fighting it will only slow things down. But do take a moment to review it for accuracy, and ask your loan officer or broker to clarify if needed.
Step 8. Clear to close and loan signing (4-5 days)
Once the appraisal is complete and the loan underwriter has all the necessary documents to close your loan, you’ll be “clear to close.”
The CTC notice basically equates to an approved loan, as opposed to a conditionally-approved loan.
This means you can set up a signing date with an attorney or notary to officially sign loan documents.
You will receive a Closing Disclosure (CD), which like the Loan Estimate (LE) is a final overview of your loan details. And an ALTA Settlement Statement.
When you download a copy of the CD, you will have electronically acknowledged it.
Be sure to review these documents closely to ensure nothing has changed, or if changes were made, aren’t mistakes or new costs to you.
Make sure the loan payoff amount is correct if a refinance, and pay attention to prepaid interest going to your old lender and new lender.
Also double-check all the closing costs, lender credit (if applicable), and cash to borrower if it’s a cash out refinance.
On most refinances, signing will also trigger the 3-day right of rescission, which is a cooling off period where you get to decide if you want to move forward with the transaction.
Step 9. Rescission Period (3 business days)
Once you sign your loan documents, the cooling off period, known as your right of rescission, begins.
Technically, it starts at midnight the day after you sign, and lasts a full three 3 business days.
This is a period of time consumers are afforded to think over the transaction, which they might not want to go through with for whatever reason.
While this is happening, your lender will do a final check of your loan file to ensure it’s eligible to fund.
This may include a review of your credit report and employment, so be sure not to make any large purchases or change jobs during the entire process!
It’s also possible that some prior-to-funding (PTF) conditions could be due if they need additional documents to tie any loose ends. Be sure to get these to lender ASAP to avoid any delays.
If a Sunday or federal holiday happens to take place during these three days, it could take 4-5 days to end.
This is why it’s imperative to get your loan docs signed with room to spare on your rate lock. You won’t want it to expire and/or need to be extended. It’s a headache and can cost you money.
In terms of waiving your RoR, it’s difficult to do and lenders aren’t fans because of compliance issues.
So prepare to sit and wait for these long three (or more) days to pass…
Step 10. Loan funding and recording (1-2 days)
It’s finally happening! The lender is ready to fund your loan, which will result in paying off your old lender or loan servicer.
Simply put, they use the loan proceeds to pay off the original loan and you wind up with a new mortgage.
If you elected to take cash out, the money will be deposited into your bank account within a day or two, or a check will be sent.
These funds will be released once your deed/loan is recorded with your county recorder’s office, which typically takes place the day after funding.
The funding piece is when the money is sent to escrow from your new lender, and after it records, that money can be disbursed via escrow to all interested parties.
For example, your lender may fund your loan on a Thursday and record it on Friday. So be patient.
Keep an eye out for a payment on your old loan – log on to the old loan servicer’s website and you should see a big payment that pays off the loan in full!
You may also receive an email from your old servicer congratulating you on paying off your loan, even though it’s really just being transferred elsewhere.
If you have an escrow account, look out for a refund check in the weeks following.
After everything is complete, you can go back to your normal life. This might include spending money again! And buying new stuff for your place.
It’s safe to apply for a new credit card, lease a car, or buy furniture. Just make sure the loan truly is closed before you proceed.
Lastly, look out for details regarding where to send your first mortgage payment, and also when your first payment is due.
Your loan will likely be transferred to a new loan servicer and you’ll need to pay them going forward.
Take note of this company and set up an online account with them ASAP so future payments aren’t delayed.
And review your new escrow account (if applicable) to ensure everything looks correct!
How Many Days to Close a Refinance?
Now that you better understand the process, we can briefly talk about how long the whole thing will take.
I put some time estimates next to each step along the way, which as noted, can vary and also overlap.
The average time to refinance from application to closing might be roughly 45 days, but this can be shorter or longer depending on what transpires.
If you have a straightforward loan (W-2 borrower, good credit, primary residence) and your lender isn’t overly busy, it could all happen in 30 days or less.
You might even be able to get to the finish line in three weeks or less if you really push and everything goes your way.
But it’s not all in your control, and will depend on what time of year you apply, along with your specific loan scenario.
Typically, it’s quieter in the fourth quarter of the year (Oct – Dec), and busiest in spring during the home buying frenzy.
Either way, it’s not something you want to rush, so make time for it and plan for the unexpected.
For example, don’t book an international trip that departs a day (or even a week) after the expected closing date! Give yourself a buffer.
To sum things up, a mortgage refinance doesn’t have to be painful, and can actually be quite easy if you follow directions and prepare/organize accordingly.
It also helps to work with a reputable lender or mortgage broker, so always vet the company or individual before you proceed. Happy refinancing!
(photo: Tim Green)